Critical Acclaim for
Ron Chernow’s The House of Morgan,
WINNER OF THE 1990 NATIONAL BOOK AWARD FOR NONFICTION:
“The House of Morgan offers a long look at how the contemporary financial
landscape came into being. . . . A panoramic and well-researched look at the
most powerful family of banks in America over the last century . . . Chernow has
a supple, refined style.”
—The Washington Post Book World
“Chernow presents fresh portraits of the Morgans and the brilliant senior
partners who made the bank an international powerhouse. . . . He dishes up
enough scandal, tragedy, and intrigue for a TV miniseries.”
—USA Today
“A brilliant, generation-spanning history of the Morgan banking empire, which
offers a wealth of social and political as well as economic perspectives. . . . He
writes in a lively, definite fashion that could make the exhaustively documented
account the standard reference for specialists as well as lay readers.”
—Kirkus Reviews (starred review) “Entertaining and meticulously
researched . . . pulls aside the cloak of mystery that has long surrounded this
powerful American institution . . . that wielded far more power than most
Americans ever imagined, even in their most fevered nightmares.”
—Dallas Times Herald
“Packed with revelations, Chernow’s mammoth history demystifies the inner
workings of the secretive Morgan banking empire.”
—Publishers Weekly
“Brilliantly researched and written, The House of Morgan is to . . . Liar’s Poker
what War and Peace is to a Judith Krantz novel. . . . To a potentially dry and
certainly difficult subject—the influence of high finance on modern life—
Chernow brings a lively style and the endurance of a trouper.”
—The Wall Street Journal
“Long, ambitions, but highly readable . . . Chernow highlights the degree to
which the Morgan bank symbolized an era of Anglo-American hegemony and
the growing shift of financial power from London to New York. . . . The book is
as much about the characters of Morgan as about its history.”
—The Economist
“Chernow vividly portrays the influence that the Morgan banks have had on the
history of the Western economy since the late-eighteenth century. . . . Epic . . .
An important book.”
—Library Jounral (starred review) “Ron Chernow’s The House of Morgan is
utterly absorbing. The study of J. P. Morgan & Co. and its offshoots is not
merely the chronicle of an institution, but indeed of American finance and
society. Chernow has done his research thoroughly, and written it up splendidly.
A must for anyone curious as to how things have come to work the way they
do.”
—Michael M. Thomas
“Far more than the history of an American banking dynasty—it’s the story of the
evolution of modern finance . . . so skillfully and engagingly written, it’s hard to
put down once begun . .. Richly woven . . . Every page is fascinating.”
—Pittsburgh Press
“A fabulous cast of characters, some well-known by name if not personality,
others well-known only to the aficionados of wealth . . . This evolution of
banking and companies, and the triumphs and tragedies along the way, is both a
fascinating and instructive story.”
—Fort Worth Star-Telegram
“Rich, monumental. . . As enchanting as an old-fashioned novel.”
—Entertainment Weekly
“A lucid and highly entertaining account of this century and a half of
transmogrification, presenting the findings from newly available archival
material to capture brilliantly the inherent drama, global historical sweep,
immense business, and political magnitudes, high social glamour, and, above all,
moral ambiguities of the story.”
—America
“As informative and entertaining a history, especially of the period from 1880 to
1930, as this reviewer has ever read . . . Nowhere has our tenuous financial
system been better described than by Chernow.”
—Los Angeles Times Book Review
THE HOUSE OF MORGAN
An American Banking Dynasty and the Rise of
Modern Finance
RON CHERNOW
For Valerie and Israel and Ruth
Copyright © 1990 by Ron Chernow
Foreword © 2010 by Ron Chernow
All rights reserved. No part of this book may be reproduced in any form or
by any electronic or mechanical means, including information storage and
retrieval systems, without permission in writing from the publisher, except by a
reviewer, who may quote brief passages in a review. Scanning, uploading, and
electronic distribution of this book or the facilitation of such without the
permission of the publisher is prohibited. Please purchase only authorized
electronic editions, and do not participate in or encourage electronic piracy of
copyrighted materials. Your support of the author’s rights is appreciated. Any
member of educational institutions wishing to photocopy part or all of the work
for classroom use, or anthology, should send inquiries to Grove/Atlantic, Inc.,
841 Broadway, New York, NY 10003 or permissions@groveatlantic.com.
Excerpt from The House of Morgan: An Intimate Portrait by Herbert L.
Satterlee reprinted with permission of Macmillan Publishing Company.
Copyright © 1939 by Herbert L. Satterlee, renewed 1967 by Mrs. Mabel
Satterlee Ingalls.
Published simultaneously in Canada
Printed in the United States of America
Library of Congress Cataloging-in-Publication Data
Chernow, Ron.
The house of Morgan: an American Banking dynasty and the rise of
modern finance / by Ron Chernow.
ISBN-13: 978-0-8021-4465-2
1. Morgan Guaranty Trust Company of New York—History. 2. Banks
and banking—United States—History. I. Title.
HG2613.N54M6613
1990 332.1’2’097471—dc20 89-17542
DESIGN BY JOYCE C. WESTON
Grove Press
an imprint of Grove/Atlantic, Inc.
841 Broadway
New York, NY 10003
Distributed by Publishers Group West
www.groveatlantic.com
10 11 12 13 14
10 9 8 7 6 5 4 3 2 1
It is necessarily part of the business of a banker to profess a conventional
respectability which is more than human. Life-long practices of this kind make
them the most romantic and the least realistic of men.
—John Maynard Keynes
CONTENTS
Foreword
Prologue
PART ONE: THE BARONIAL AGE, 1838-1913
1. Scrooge
2. Polonius
3. Prince
4. Corsair
5. Corner
6. Trust
7. Panic
8. Titanic
PART TWO: THE DIPLOMATIC AGE, 1913-1948
9. Metamorphosis
10. War
11. Explosion
12. Odyssey
13. Jazz
14. Golden
15. Saint
16. Crash
17. Depression
18. Midget
19. Crack-Up
20. Wizard
21. Embezzler
22. Appeasement
23. Hostages
24. Passages
PART THREE: THE CASINO AGE, 1948-1989
25. Methuselah
26. Mavericks
27. Jonah
28. Tabloid
29. Samurai
30. Sheiks
31. Tombstones
32. Samba
33. Traders
34. Bang
35. Bull
36. Skyscraper
Acknowledgments
Abbreviations
Notes
Bibliography
Photo Credits
Index
“THE HOUSE OF MORGAN” 20th ANNIVERSARY
EDITION
Like many first books, The House of Morgan was something of a happy
accident in the author’s life when it was published twenty years ago. After years
toiling in the vineyard of freelance magazine work, I decided to take a breather
from that hectic world in the mid 1980s and landed a job in a public policy
foundation called The Twentieth Century Fund, where I was put in charge of
financial policy studies. During this heyday of the bull market that roared
through Ronald Reagan’s presidency, huge numbers of people were swept into
the financial world for the first time, whether as foot soldiers in investment
banks or small investors dabbling in common stocks, and they had little historic
perspective on the new world they inhabited.
As I dipped into the rich literature of financial history, I was struck that the old
Wall Street—elite, clubby, and dominated by small, mysterious partnerships—
bore scant resemblance to the universe of faceless conglomerates springing up
across the globe. It dawned on me that the hordes of financial novices might be
ripe for a history that would chronicle how the old Wall Street evolved into the
new. A straight history, I knew, would be a tedious task for readers and do small
justice to the turbulent pageant of heroes and scoundrels I was unearthing. So I
posed the question: was there a single family or firm whose saga could serve as a
prism through which to view the panoramic saga of Anglo-American finance?
There were relatively few dynasties in financial history and, hence, few suitable
candidates. Some names, such as Rothschild, had long since passed the zenith of
their glory, while others had a contemporary resonance with only shallow roots
in the past. Only one firm, one family, one name rather gloriously spanned the
entire century and a half that I wanted to cover: J.P. Morgan. To reconstruct the
Morgan story, I realized, would be a daunting enterprise, for I would have to
narrate the intricate stories of four interlocking firms: J.P. Morgan and Morgan
Stanley in New York, Morgan Grenfell in London, and Morgan et Compagnie in
Paris.
As an old English major and novelist manque, I had no training in historical
methods, nobody to steer me in the right direction, as I bumbled about in my
early research. I had naively assumed that, within its august walls, J.P. Morgan &
Co. housed a comprehensive set of historical papers and that it would be my task
to lay my hands on it. For six months, I lunched with two affable bank
representatives as they and their associates debated whether to cooperate with
my project. Then one day, I made a startling discovery: the papers of Thomas W.
Lamont, senior partner of the Morgan bank during the inter-war years, resided at
the Harvard Business School Library. During my first day of research there, I
pored over correspondence between Lamont and Franklin Roosevelt, Benito
Mussolini, Charles Lindbergh, and Nancy Astor. These papers threw open a
window on the hermetically sealed world of Morgan partners.
Aside from the grace and clarity of these letters—old-school bankers tended
to be surprisingly literate—they were detailed and gripping beyond my wildest
imaginings. When Lamont spoke on the telephone with President Herbert
Hoover, for instance, a dutiful amanuensis took down a verbatim transcript.
Suddenly, the opaque Morgan world had turned transparent. Soon I uncovered
papers of other Morgan partners at Amherst, Yale, Columbia, the University of
Virginia, and, of course, the Morgan Library in New York. Sometimes I felt as if
I could trail the Morgan partners around the bank on an almost hourly basis.
Curiously enough, nobody at J.P. Morgan & Co. had ever noticed the
disappearance of tens, perhaps hundreds, of thousands of internal documents. So
much for the vaunted Morgan reputation for secrecy!
When I signed the contract for The House of Morgan, I had worried about a
shortage of original documents and now had to contend with the embarrassment
of riches. My advance, if generous for a first book, could scarcely cover years of
leisurely research, so I had to cram a gigantic amount of work into a brief span.
Somehow I managed to research and write an eight hundred-page book in twoand-a-half years—a feat I could never duplicate today. I was sustained by the
sheer excitement of my findings, the knowledge that I had luckily stumbled upon
the foremost drama in financial history. I also coasted on the pent-up energy of a
young writer who had finally secured his first book contract after many failed
efforts. Whenever I think of the time spent on the book, I remember the
headlong pace, the frantic reading into the night, the exhausting attempt to
squeeze the epic story of finance between two covers. It is therefore with a sense
of miraculous good fortune that I now open the book and find lucid, coherent
prose that shows, at least to my eyes, little of the sweat and haste of its creation.
R.C.
BROOKLYN, NEW YORK
SEPTEMBER 2009
PROLOGUE
This book is about the rise, fall, and resurrection of an American banking
empire—the House of Morgan. Perhaps no other institution has been so
encrusted with legend, so ripe with mystery, or exposed to such bitter polemics.
Until 1989, J. P. Morgan and Company solemnly presided over American
finance from the “Corner” of Broad and Wall. Flanked by the New York Stock
Exchange and Federal Hall, the short building at 23 Wall Street, with its
unmarked, catercorner entrance, exhibited a patrician aloofness. Much of our
story revolves around this chiseled marble building and the presidents and prime
ministers, moguls and millionaires who marched up its steps. With the records
now available, we can follow them inside the world’s most secretive bank.
The old pre-1935 House of Morgan was probably the most formidable
financial combine in history. Started by an American banker, George Peabody, in
London in 1838, it was inherited by the Morgan family and transplanted to New
York to famous effect. In the popular mind, the two most familiar Morgans—J.
P. Morgan, Sr. (1837-1913), and J. P. Morgan, Jr. (1867-1943)—are rolled into a
composite beast, J. P. Morgan, that somehow endured for more than a century.
Their striking physical resemblance—the bald pate, the bulbous nose, the pearshaped frame—has only fed confusion. For admirers, these two J. P. Morgans
typified the sound, old-fashioned banker whose word was his bond and who
sealed his deals with a handshake. Detractors saw them as hypocritical tyrants
who bullied companies, conspired with foreign powers, and coaxed America into
war for profit. Nobody was ever neutral about the Morgans.
Before the Depression, 23 Wall was headquarters of an empire with several
foreign outposts. Seated behind rolltop desks on the Broad Street side, the New
York partners were allied with three other partnerships—Morgan Grenfell in
London, Morgan et Compagnie in Paris, and Drexel and Company, the so-called
Philadelphia branch of J. P. Morgan. Of these, Morgan Grenfell was easily the
most powerful, forming the central London-New York axis of the Morgan
empire. It was a transatlantic post office for British and American state secrets.
Before the New Deal, the term “House of Morgan” applied either to J. P. Morgan
and Company in New York or, more broadly, to the whole shadowy web of
partnerships.
The old House of Morgan spawned a thousand conspiracy theories and busied
generations of muckrakers. As the most mandarin of banks, it catered to many
prominent families, including the Astors, Guggenheims, du Ponts, and
Vanderbilts. It shunned dealings with lesser mortals, thus breeding popular
suspicion. Since it financed many industrial giants, including U.S. Steel, General
Electric, General Motors, Du Pont, and American Telephone and Telegraph, it
entered into their councils and aroused fear of undue banker power. The early
House of Morgan was something of a cross between a central bank and a private
bank. It stopped panics, saved the gold standard, rescued New York City three
times, and arbitrated financial disputes. If its concerns transcended an exclusive
desire for profit, it also had a peculiar knack for making good works pay.
What gave the House of Morgan its tantalizing mystery was its government
links. Much like the old Rothschilds and Barings, it seemed insinuated into the
power structure of many countries, especially the United States, England, and
France, and, to a lesser degree, Italy, Belgium, and Japan. As an instrument of
U.S. power abroad, its actions were often endowed with broad significance in
terms of foreign policy. At a time when a parochial America looked inward, the
bank’s ties abroad, especially those with the British Crown, gave it an
ambiguous character and raised questions about its national loyalties. The old
Morgan partners were financial ambassadors whose daily business was often
closely intertwined with affairs of state. Even today, J. P. Morgan and Company
is probably closer to the world’s central banks than any other bank.
This empire was shattered by the Glass-Steagall Act of 1933, which erected a
high wall between commercial banking (making loans and accepting deposits)
and investment banking (issuing stocks and bonds). In 1935, J. P. Morgan and
Company chose to remain a commercial bank and spun off Morgan Stanley, an
investment house. Seeded with J. P. Morgan capital and personnel, Morgan
Stanley for decades clearly exhibited common ancestry with its Morgan brother
down the block. They shared many clients and kept alive a family feeling no less
potent for its informality. Glass-Steagall didn’t bar J. P. Morgan from holding a
minority stake in an overseas securities house, however. Until 1981, it kept a
one-third interest in Morgan Grenfell. As our story will show, the three Morgan
houses functioned as a de facto House of Morgan long after the New Deal ended
and in the early 1970s even contemplated reunion. Today for the first time, the
three houses lack formal links and are engaged in fierce rivalry. As deregulation
in London and New York has dismantled old regulatory barriers, the three
increasingly clash as they sell competing services.
While people know the Morgan houses by name, they are often mystified by
their business. They practice a brand of banking that has little resemblance to
standard retail banking. These banks have no teller cages, issue no consumer
loans, and grant no mortgages. Rather, they perpetuate an ancient European
tradition of wholesale banking, serving governments, large corporations, and
rich individuals. As practitioners of high finance, they cultivate a discreet style.
They avoid branches, seldom hang out signposts, and (until recently) wouldn’t
advertise. Their strategy was to make clients feel accepted into a private club, as
if a Morgan account were a membership card to the aristocracy.
The truest heir to the old House of Morgan is J. P. Morgan and Company, also
known by the name of its bank subsidiary, Morgan Guaranty Trust. A universe
away from the coarse bustle of Chase Manhattan or Citibank, it seduces the rich
with leather armchairs, grandfather clocks, and polished brass lamps. In private
dining rooms, anniversaries of accounts are celebrated, with customers receiving
engraved menus as souvenirs. The bank won’t soil its white gloves with just
anybody’s cash, and many depositors bring along corporate connections.
Although the bank is bashful about revealing precise figures, it prefers personal
accounts of at least $5 million and will occasionally stoop as low as $2 million—
as a favor. The Morgan bank is the foremost repository of old American money.
While private accounts give Morgan its glamorous cachet, they generate only
a small fraction of the profits. The bank concentrates on blue-chip corporations
and governments, organizing large credits and securities issues and trading
foreign exchange and other instruments. The Morgan bank used to boast that
ninety-six of America’s one hundred largest corporations were clients and hinted
that in two of the remaining cases, it had blackballed the companies as unfit. As
with personal accounts, it never wanted to appear too eager for business. Instead
of setting up offices hither and yon, it preferred to have clients make pilgrimages
to it. This rule applied to its outposts abroad as well: a Lyons businessman would
travel to Paris, a Midlands businessman to London, to see his Morgan banker.
Even in today’s far more competitive world, there is seldom more than one J. P.
Morgan office in a country.
For more than a century, this traditional formula, reworked many times, has
paid off handsomely. On the eve of the 1987 crash, J. P. Morgan and Company
was America’s most expensive bank, even though only the fourth largest. Based
on its share price, it would have cost $8.5 billion to buy, or more than Citicorp.
Although beleaguered by over $4 billion of Latin American debt, J. P. Morgan’s
subsidiary bank, Morgan Guaranty, was America’s only major bank to boast a
triple-A rating. For most of the 1980s, it had the highest return on equity of any
bank, often ranking second in profits only to Citicorp and with only half its
assets. As the nation’s premier trust bank, it managed $65 billion in securities on
Black Monday 1987. It has been praised as “first in quality by about any
measure you can think of” and “for many the perfect bank.”1 Although a fair
share of blunders and isolated scandals have undercut the hyperbole, the
judgments remain generally valid.
At least until it swept into hostile takeovers in the late 1980s, Morgan
Guaranty best retained the historic Morgan culture of gentlemanly propriety and
conservative dealings. As confidant of the Federal Reserve and other central
banks, it still exhibits vestiges of its old statesman’s role. Morgan Stanley, in
contrast, has wandered furthest from its roots. From 1935 through the 1970s, it
enjoyed a reign such as no investment bank will ever match. Its clients included
six of the seven-sister oil companies (Gulf Oil being the exception) and seven of
America’s ten largest companies. Such success led to storied arrogance, a comic
vanity. When one partner left for First Boston in the mid-1970s, he was
congratulated by another: “That’s really exciting. Now you’ll be dealing with the
second-best list of clients.”2 Indeed, the client rosters of any two competitors
together couldn’t have touched Morgan Stanley’s. When the firm started
advertising in the 1970s, an agency created a sketch of a thunderbolt piercing a
cloud, with the caption, “IF GOD WANTED TO DO A FINANCING, HE WOULD CALL
MORGAN STANLEY.” For Morgan Stanley partners, this neatly summarized their
place in the cosmos. Asked at the 1988 annual meeting about the firm’s policy of
serving on nonclient boards, Chairman S. Parker Gilbert paused thoughtfully and
replied, “We have no nonclients.”3
Once nicknamed the house of Blood, Brains, and Money, Morgan Stanley
fussily demanded exclusive relations with companies. If clients dared to consult
another house, they were advised to look elsewhere for a banker. Wall Street
grumbled about these “golden handcuffs,” but neither it nor the Justice
Department could ever break the shackles; far from feeling imprisoned,
companies craved this association with the Morgan mystique and gloried in their
servitude. In floating stocks or bonds, Morgan Stanley insisted on being sole
manager, its name engraved in solitary splendor atop the “tombstone ads” that
announce offerings. This pomposity was clever advertising, helping to make
Morgan Stanley the “Rolls Royce of investment bankers.”4
Today Morgan Stanley occupies sixteen floors of the Exxon Building in New
York City. Its odyssey from a small, genteel underwriting house to a razzledazzle financial conglomerate traces the rise of modern Wall Street itself. It has
been the perfect bellwether of postwar finance. Long regarded as uncommonly
successful but stuffy, it underwent a startling metamorphosis in the 1970s, from
which it emerged in unrecognizably aggressive form. Once Wall Street’s most
conservative firm, it violated taboos it had conscientiously upheld and made
respectable a far rougher style of finance. In 1974, it carried out the first hostile
raid of the modern era, then dominated that rambunctious world. (In early 1989,
it was still America’s top merger adviser, claiming $60 billion in deals during the
year’s first half.) In the 1980s, it gentrified junk bonds and amassed a huge twobillion-dollar war chest for leveraged buyouts, the decade’s riskiest innovation.
After shocking Wall Street by siding with corporate raiders, it became a raider
itself, acquiring stakes in forty companies. For more than a decade, an
incredulous business press has exclaimed, “This is Morgan Stanley?” All the
while, with its 30-percent return on equity, it has consistently rated as the most
profitable of publicly traded securities firms. It has had unerring strategic
judgment.
To complete the family album, we note Morgan Grenfell, one of London’s
most prestigious merchant banks. Throughout its history, it has exuded an aura
of Eton, country houses, gentleman’s clubs, and Savile Row tailoring. Tucked
away at an angle on L-shaped Great Winchester Street in the City—London’s
equivalent of Wall Street—it stands unmarked behind a tall, pedimented portal
and gauzy curtains. Inside, it has the winding, intimate passageways of a private
mansion, lined with small conference rooms named after deceased partners.
In the early postwar years, Morgan Grenfell was run by a clutch of rather
tired, apathetic old peers and was derisiveily termed the House of Lords by
Morgan Guaranty people. (It still has several knights and lords on its blue-ribbon
board.) Through much of the 1950s and 1960s, it mostly issued securities for
venerable industrial clients and battled against a lethargy bred by success. Then,
like Morgan Stanley, it cast off its sloth and turned into the City’s most
marauding firm, specializing in aggressive takeovers. Like Morgan Stanley, it
used its prestige to stretch the limits of acceptable behavior and became the
gentleman pirate of the City. As the star of London’s takeover scene in the
1980s, it shattered the sedate world of British finance it had once exemplified.
Throughout the decade, it regularly ranked first in London takeovers and by
1985 was managing four of the six largest acquisitions in the City. Then its
dandified raiders, with their swaggering style, led the firm straight into the shareprice manipulation of the Guinness scandal. Prime Minister Margaret Thatcher
would personally demand the heads of two Morgan Grenfell executives in what
was regarded as the City’s worst scandal of the century.
The story of the three Morgan banks is nothing less than the history of AngloAmerican finance itself. For 150 years, they have stood at the center of every
panic, boom, and crash on Wall Street or in the City. They have weathered wars
and depressions, scandals and hearings, bomb blasts and attempted
assassinations. No other financial dynasty in modern times has so steadily
maintained its preeminence. Its chronicle holds up a mirror in which we can
study the changes in the style, ethics, and etiquette of high finance. To order this
vast panorama, we will divide our saga into three periods. This framework
applies principally to the Morgan houses but also has, I think, more general
relevance to other banks.
During the pre-1913 Baronial Age of Pierpont Morgan, bankers were masters
of the economy, or “lords of creation,” in author Frederick Lewis Allen’s phrase.
They financed canals and railroads, steel mills and shipping lines, supplying the
capital for a nascent industrial society. In this age of savagely unruly
competition, bankers settled disputes among companies and organized trusts to
tame competition. As the major intermediaries between users and providers of
capital, they oversaw massive industrial development. Because they rationed
scarce capital, they were often more powerful than the companies they financed
and acquired increasing control over them. This produced a generation of
headstrong bankers who rolled up fabled fortunes, aroused terror in the
populace, and finally prompted a political campaign to curb their hypertrophied
influence.
In the Diplomatic Age of J. P. Morgan, Jr., bounded by the two world wars,
private bankers served as adjuncts of government, performing covert missions
and operating as co-equals of central banks. Morgan bankers were now power
brokers and unofficial representatives of governments at global conferences. As
confidants of kings, presidents, and popes, they operated under the close
supervision of Washington or Whitehall in foreign dealings. To the outside
world, they often seemed the visible face of government policy. At home, they
remained “traditional banker” to companies that, if still loyal, decreasingly
needed the patronage of a strong banker. Maintaining exclusive relations with
clients, the Morgan partners enjoyed the luxury of a world that seems enviably
graceful and unhurried by modern standards.
In the postwar Casino Age, bankers have lost control over clients in the fierce,
anonymous competition of global markets. Multinational corporations now
tower over bankers and rival them in terms of capital and financial expertise.
Institutional investors, such as insurance companies, mutual funds, and pension
funds, present new countervailing sources of power. With companies and
governments able to raise money in many currencies and countries, the power
balance has tilted dramatically away from the bankers. This sounds paradoxical
in an age dominated by daily news stories of flashy billion-dollar deals. Yet as
the Morgan story shows, this new style of financial aggression is really a
symptom of the bankers’ weakness. As their old clients have been liberated,
gentleman bankers have had to hustle for business and search for new niches.
They have found these niches in a ruthless world of corporate takeovers that has
rescued them but endangered the economy. In this bruising new age of finance,
bankers have jettisoned traditions that had ruled Anglo-American finance since
Victorian times.
This book’s thesis is that there will never be another bank as powerful,
mysterious, or opulent as the old House of Morgan. What the Rothschilds
represented in the nineteenth century and the Morgans in the twentieth won’t be
replicated by any firm in the next century. The banker no longer enjoys a
monopoly on large pools of money. As world finance has matured, power has
become dispersed among many institutions and financial centers. So our story
looks back at a banking world fast vanishing from sight—one of vast estates, art
collections, and oceangoing yachts, of bankers who hobnobbed with heads of
state and fancied themselves ersatz royalty. Contrary to the usual law of
perspective, the Morgans seem to grow larger as they recede in time.
BROOKLYN, NEW YORK
JULY 1989
PART ONE
The Baronial Age
1838-1913
CHAPTER ONE
SCROOGE
WHEN Baltimore merchant George Peabody sailed for London in 1835, the
world was in the throes of a debt crisis. The defaulting governments weren’t
obscure Balkan nations or South American republics but American states. The
United States had succumbed to a craze for building railroads, canals, and
turnpikes, all backed by state credit. Now Maryland legislators, with the bravado
of the ruined, threatened to join other states in skipping interest payments on
their bonds, which were largely marketed in London. As one of three state
commissioners assigned to renegotiate the debt, Peabody urged officials to tone
down their rhetoric and placate British bankers. But American legislators found
it easier to pander to the hatred of foreign bankers rather than to raise new taxes
to service debt.
London was the sun in the financial solar system. Only Britain had a huge
surplus of funds in a capital-short world, and sterling was the currency of world
trade; its official use dated back to William the Conqueror. In the afterglow of
the Napoleonic Wars, bankers of the City—London’s financial district—were
self-styled potentates, often with access to more money than the governments
and companies they financed. Firms such as Barings and Rothschilds maintained
an imperial reserve, omitting their names from doorways and letterheads,
refusing to solicit business or open branches, and demanding exclusive client
relations. Statesmen from Europe and Latin America trooped humbly to their
doorsteps. One observer remarked, “to be asked for lunch was like being
received in audience by a king.”1
Though intensely patriotic, the forty-year-old Peabody identified with the
British creditors. When the other Maryland commissioners returned home in
despair, Peabody threw a glittering dinner for a dozen bankers to persuade them
that Americans weren’t all rustic swindlers. He argued that only new loans could
guarantee repayment of the old—a convenient line to be echoed by many future
debtor states. Far from cutting off Maryland’s credit, the bankers advanced
another $8 million. As his friend the English political leader George Owen said
of Peabody, “He borrowed the money on his face.”2 To mitigate British prejudice
against “venal” Americans, he boldly waived his $60,000 commission from
Maryland.
Peabody, a good talker, was not prepossessing. Over six feet tall with light
blue eyes and dark brown hair, he had a rumpled face, with knobby chin,
bulbous nose, side whiskers, and heavy-lidded eyes. That this homely man
would found the House of Morgan—later a white-glove affair with high-society
partners famous for good looks and stylish dress—is ironic. He carried the scars
of early poverty and was quick to feel slights and perceive enemies. Like many
who have overcome early hardship by brute force, he was proud but insecure,
always at war with the world and counting his injuries.
Born in Danvers, Massachusetts, he had only a few years of schooling. When
he was a teenager, his father died, and Peabody worked in his brother’s shop to
support his widowed mother and six siblings. When he later prospered in a
Baltimore dry-goods business with a rich older partner, Elisha Riggs, he
remained haunted by his past. “I have never forgotten and never can forget the
great privations of my early years,” he later said.3 He hoarded his money,
worked incessantly, and retained a lonely air.
In 1837, Peabody moved to London. A year later he opened a merchant house
at 31 Moorgate in London, furnishing it with a mahogany counter, a safe, and
some desks. He joined a select group of merchant bankers who traded in dry
goods and also financed such trade; hence, their businesses became known as
merchant banks. They developed a form of wholesale banking remote from the
prosaic world of bank books, teller windows, and checking accounts. Their
specialty was “high finance”—serving only governments, large companies, and
rich individuals. They financed overseas trade, issued stocks and bonds, and
dealt in commodities. Ordinary people could no more do business with George
Peabody than they can today place a deposit with Morgan Guaranty, Morgan
Grenfell, or Morgan Stanley.
In setting up in London, Peabody planted the American flag in alien territory.
The United States relied on British capital to finance development and often
resented that its economic fate was decided abroad. As one congressman said in
1833, “the barometer of the American money market hangs up at the stock
exchange in London.”4 Peabody, hoping to tap this transatlantic money flow,
became a leading dealer of American state bonds in London, reversing a
contemporary trend in which London banks sent representatives to America. The
House of Baring—which bankrolled the Louisiana Purchase and always had an
American on its board—employed Thomas Ward as its American agent, while
the Rothschilds, who were ambivalent about America, posted August Belmont,
Sr., to New York.
Instead of blending into his British milieu, Peabody shrewdly flaunted his
Americanism, wrapping himself in the flag and boosting American products. He
declared that George Peabody and Company would be “an American house,”
and that he wanted to give it “an American atmosphere—to furnish it with
American journals—to make it a centre for American news, and an agreeable
place for my American friends visiting London.”5 Yet amid the patriotic pride
lurked a colonial mentality, possibly a sense of his own inferiority, a constant
need to impress the British. He hoped to refute what had “almost become a
byword among the English. hat no American House in London could long
sustain their credit.”6
Beneath a genial air, Peabody was a solitary miser. He lived in furnished
rooms in a Regent Street hotel and aside from taking occasional fishing trips,
worked nonstop. During one twelve-year period, he never took off two
consecutive days and spent an average of ten hours per day at work.
Notwithstanding his stirring speeches about America’s destiny, he didn’t return
home for twenty years, and during that time his personality darkened along with
the dismal performance of American state bonds. During the severe depression
of the early 1840s—a decade dubbed the Hungry Forties—state debt plunged to
fifty cents on the dollar. The worst came when five American states—
Pennsylvania, Mississippi, Indiana, Arkansas, and Michigan—and the Florida
territory defaulted on their interest payments. In an early debtors’ cartel, some
American governors banded together to favor debt repudiation. To this day, the
reprobate Mississippi remains in unashamed default.
British investors cursed America as a land of cheats, rascals, and ingrates.
State defaults also tainted federal credit, and when Washington sent Treasury
agents to Europe in 1842, James de Rothschild thundered, “Tell them you have
seen the man who is at the head of the finances of Europe, and that he has told
you that they cannot borrow a dollar. Not a dollar.”7 Clergyman Sydney Smith
sneered at the American “mob” and said that whenever he met a Pennsylvanian
at a London dinner, he felt “a disposition to seize and divide him. . . . How such
a man can set himself down at an English table without feeling that he owes two
or three pounds to every man in the company, I am at a loss to conceive; he has
no more right to eat with honest men than a leper has to eat with clean men.”8
Even Charles Dickens couldn’t resist a jab, portraying a nightmare in which
Scrooge’s solid British assets are transformed into “a mere United States’
security.”9
When his beloved Maryland defaulted, Peabody’s own nightmare was
complete. Whenever he met a British investor, he said, he felt shame. The British
were especially incensed over Maryland and Pennsylvania because those states
were settled by Anglo-Saxon stock and therefore should have known better.
Having marketed about half of Maryland’s securities to individual investors in
Europe, Peabody was victimized by his own success. The brouhaha had direct
repercussions, and he became persona non grata around London. The London
Times noted that while Peabody was an “American gentleman of the most
unblemished character,” the Reform Club had blackballed him for being a citizen
of a country that reneged on its debts.10 Gloomily he wrote a friend, “You and I
will, I trust, see that happy day, when as formerly, we can own ourselves
Americans in Europe, without a blush for the character of our Country.”11
A hallmark of merchant bankers was that they vouched for the securities they
sponsored. At first, Peabody merely sent letters to Baltimore friends, scolding
them about the need for Maryland to resume interest payments. Then he tired of
persuasion and rewarded reporters with small gratuities for favorable articles
about the state. At last, in 1845 he conspired with Barings to push Maryland into
resuming payment. They set up a political slush fund to spread propaganda for
debt resumption and to elect sympathetic legislators; they even drafted the clergy
into giving sermons on the sanctity of contracts. By means of a secret account,
the two firms transferred £1,000 to Baltimore, 90 percent from Barings and 10
percent from Peabody—a strategy Barings duplicated in Pennsylvania. Most
shocking of all, Barings bribed Daniel Webster, the orator and statesman, to
make speeches for debt repayment. The bankers conducted this shabby
campaign with a skulking sense of guilt; it wasn’t their preferred style. “Your
payment to Mr. Webster would not appear very well if it should get out,” Joshua
Bates, the senior Baring partner, warned Thomas Ward, American bagman for
the operation.12 Bates, a sober, diligent Bostonian, cringed at what they were
doing: “I have a sort of instinctive horror of doing one thing to effect another, or
using any sort of subterfuge or reserve,” he confessed to Ward.13
Whatever their scruples, the conspiracy thrived: pro-resumption Whigs were
elected in both Maryland and Pennsylvania, and London bankers again received
payments from both states.14 Peabody, never one to forget an injury, excluded
the most persistent debtors, Florida and Mississippi, from his later
philanthropies. Even altruism had its limits.
When the depreciated state bonds Peabody had bought up in the early 1840s
paid interest again, he reaped a fortune. Then, as revolution swept across the
Continent in 1848, American securities seemed a safe haven in comparison with
Europe. And as the California gold rush and Mexican War wiped away the last
vestiges of depression by the late 1840s, Peabody took new pride in his native
roots. Now he fancied himself the ambassador of American culture in London
and dispensed barrels full of American apples, Boston crackers, and hominy
grits.
On July 4, 1851, he hosted the first of his Independence Day dinners,
featuring the elderly duke of Wellington as guest of honor. Beneath a portrait of
Queen Victoria and a Gilbert Stuart of George Washington, the British minister
in Washington and the American minister in London drained an oak loving cup
and toasted the start of the Great Exhibition in London’s new Crystal Palace.
Because Congress wouldn’t finance American exhibitors, Peabody played the
impresario, paying to display Cyrus McCormick’s reaper and Samuel Colt’s
revolvers. But not all of Peabody’s July Fourth pageants of Anglo-American
friendship followed the desired script. In 1854, when Peabody toasted Queen
Victoria before President Pierce—an act Washington thought arch heresy—
James Buchanan, the U.S. ambassador in London and later President,
indignantly stormed from the room.
As banker and cicerone for Americans in London—once, in a single week, he
dined eighty visiting Americans and took thirty-five to the opera—Peabody was
constantly exposed to the fierce snobbery of British aristocrats toward the
American commercial class. This condescension was particularly flagrant during
Commodore Vanderbilt’s trip to London in 1853. The Commodore—vulgar,
profane, and lecherous—wanted to show London society the full splendor of
America’s richest man. With his wife and twelve children, he had sailed to
England aboard his ornate, two-thousand-ton North Star, equipped with caterer,
doctor, and chaplain. Peabody squired the Vanderbilts about Hyde Park and
installed them in his box at Covent Garden; meanwhile, the court ostracized the
ostentatious Commodore.
Peabody amassed a $20-million fortune in the 1850s as he financed
everything from the silk trade with China to iron rail exports to America.
Although he built a lyceum and library for his native Danvers in the early 1850s,
he mostly hoarded his money in preparation for the next panic. His insecurities
only worsened as he had more to lose. He told a friend in 1852, “My capital is . .
. ample (certainly nearer 400,000 pounds than 300,000) . . . but I have passed too
many money panics, unscathed, not to have seen how often large Capitals are
swept away, and that even with my own I must use caution.”15
Junius Morgan, who became Peabody’s partner in 1854, later told how he
found him one morning at the countinghouse looking sickly and rheumatic. The
miserly Peabody didn’t own a carriage but came to work by public horsecar.
“Mr. Peabody, with that cold you ought not to stick here,” Morgan said. Taking
hat and umbrella, Peabody agreed to go home. Twenty minutes later, on his way
to the Royal Exchange, Morgan found Peabody standing in the rain. “Mr.
Peabody, I thought you were going home,” the younger man said. “Well, I am,
Morgan,” Peabody replied, “but there’s only been a twopenny bus come along as
yet and I am waiting for a penny one.”16 By this time, Peabody’s bank account
bulged with over £1 million.
Enjoying the clerk’s revenge, Thomas Perman, Peabody’s assistant, handed
down a trove of nasty stories that tarnish the halo Peabody acquired as a result of
his benevolence. He told how his boss, who ate lunch at his desk each day from
a small leather lunch box, would dispatch an office boy to buy him an apple.
These apples cost one pence halfpenny, and Peabody would give the boy
twopence; although the boy dreamed of keeping the halfpenny change as a tip,
Peabody always demanded it back.
By the early 1850s, Peabody was approaching sixty and plagued by gout and
rheumatism. His annual savings were staggering: he spent only about $3,000 of a
total annual income of $300,000.17 With such wealth and such stinjiness, he was
ripe for spiritual conversion. As he later said, “When aches and pains came upon
me, I realized I was not immortal . . . I found that there were men in life just as
anxious to help the poor and destitute as I was to make money.”18
Wanting to dedicate himself to philanthropy, Peabody had only one problem.
As an autocratic banker, he had never shared authority and only reluctantly made
his office manager, Charles C. Gooch, a junior partner in 1851, so that someone
could act in his absence. Gooch was a sad-faced Bob Cratchit who addressed
Peabody like a trembling clerk; in fact, he had started as head clerk. He started
one letter to his boss by writing, “Dear Sir, I do not often trouble you with
letters, for I know you do not like the trouble of reading them, & mine are on
subjects not over agreeable.”19 Gooch was being groomed for a career of
permanent subordination and forelock tugging.
Ordinarily, Peabody would have chosen a son or nephew to take over the
business. Most merchant banks were family partnerships with a few talented
outsiders. But as a bachelor, Peabody was in the unusual position of having to
shop for an heir and bequeath his empire to a stranger. He was, however, no
stranger to the company of women. While he didn’t smoke or drink, he resorted
to the shadowy world of illicit pleasures. The tale-bearing Perman regaled the
Morgans with the story of Peabody’s mistress in Brighton, whom he liberally
favored with advances of £2,000. He excluded this woman and her illegitimate
daughter from his will, and for years after his death, Peabody’s daughter Mrs.
Thomas would materialize and badger the Morgans for money. In the late 1890s,
the Morgans received an appeal from her two sons—one training to be a
barrister, the other at Oxford or Cambridge. The aging Perman was dispatched to
verify their Peabody genes. When he returned, he breathed with amazement,
“Both of them have the old man’s nose to a dot.”20
We don’t know why Peabody relegated love to the dim corners of his life. In
general, he specialized in what Dickens called telescopic philanthropy—
bountiful love for abstract humanity combined with extreme stinginess toward
the individuals he knew personally. He would enjoy a reputation for generosity
throughout the Victorian world—everywhere, in fact, but among his
unacknowledged family and employees.
Peabody had definite requirements for his successor: he wanted a sociable
American with a family and experience in foreign trade. His Boston associate,
James Beebe, recommended his junior partner, funius Spencer Morgan. Junius
had been with J. M. Beebe, Morgan for three years. In May 1853, he visited
London with his family, bringing along his high-spirited but sickly son, John
Pierpont, then recovering from rheumatic fever. Pierpont was boyishly thrilled
with his first exposure to British culture. He visited Buckingham Palace and
Westminster Abbey, excitedly handled a million pounds of bullion at the Bank of
England, and listened to a Sunday sermon at Saint Paul’s. Meanwhile, his father
talked business with Peabody, whom Pierpont found “pleasant but smoky.”21 In
general, Pierpont found Peabody a queer, likable old buzzard.
Junius Spencer Morgan was tall with sloping shoulders and the thickening
midriff of a strong but sedentary man. He had a wide face, light blue eyes, a
prominent nose, and a firm mouth. He was witty and genial, but a deep reserve
and watchfulness lay behind the charm. Junius Morgan always had a gravely
mature air. His skeptical eyes gave him a hooded gaze, a banker’s air of
vigilance. Big and brooding, he was the sort of prematurely middle-aged young
man old financiers found consoling. A contemporary writer called him grimmouthed; indeed, it is hard to imagine him young or carefree. He was solemn
and businesslike and always master of his emotions.
Peabody asked Morgan to be his partner and receive his empire on a silver
platter. Junius’s grandson, J. P. Morgan, Jr., later recounted their exchange:
“You know,” said Peabody, “I shall not want to go on much longer but, if you
will come as a partner for ten years, I shall retire at the end of them, and at that
time shall be willing to leave my name, and, if you have not accumulated a
reasonable amount of capital in the concern, some of my money also, and you
can go ahead as the head of it.”
“Well, Mr. Peabody,” replied Morgan, “that sounds like a very good offer, but
there are many things to be considered, and I could not think of giving an answer
until I have looked over the books of the firm and have some idea of the business
and of the methods by which it is done.”22
It is revealing that Morgan didn’t leap at the fortune but responded with cool
self-control. Evidently he was mightily pleased by the books—capital of
£450,000, a caliber of business only one rung below the houses of Baring and
Rothschild. So in October 1854, he was admitted into partnership, and he settled
into new walnut-paneled headquarters at 22 Old Broad Street. The partnership
document stipulated that the firm would buy and sell stocks, engage in foreign
exchange, extend banking credits, and broker railroad iron and other
commodities. To entertain American visitors, Peabody gave Morgan an expense
account of £2,500 per year. A fortune had been deeded over—or so it seemed at
the time. A decade later, as Peabody was being canonized for his philanthropy,
Junius Morgan would bitterly recall the promises Peabody had made to him. And
he would join the ranks of those spurned during George Peabody’s ascent to
sainthood.
Morgan moved to London in 1854, it was a more auspicious time for
an American banker than it had been when Peabody was flogging the hated
Maryland bonds in the 1830s. American grain prices soared during the Crimean
War, and western railroads that transported grain boomed as well, creating a
mania for their shares. Railroads devoured vast amounts of capital, and in the
decade before the Civil War, investors poured $1 billion into their development,
triple any former commitment. As a leading London dealer of American railroad
securities, George Peabody and Company was well placed to exploit this latest
craze.
Yet, as the decade passed, Junius Morgan must have doubted the wisdom of
transplanting his family to England. Peabody was a trying partner, and no real
warmth existed between the two, as shown by their correspondence when the
junior partner visited America each year. Their letters are formal and correct but
notably lacking even in pleasantries. Morgan would make obligatory inquiries
about Peabody’s health—always apt to please his hypochondriacal partner—but
addressed him as “Dear Sir” and signed each letter with frosty respect—“J. S.
Morgan.” Morgan found Peabody petty and vindictive and told how his partner
once spent half the afternoon hauling some poor cab driver down to the police
station for overcharging him.
Then, in 1857, it looked as if Morgan would be denied his promised fortune.
Wheat prices tumbled with the end of the Crimean War, causing hardship for
American banks and railroads. By October, New York banks stopped gold
WHEN
payments, preventing American correspondents from transferring funds to
Peabody in London. He was suddenly overextended on his American bills. At
the same time, London investors sold American securities, siphoning more funds
from Peabody and provoking a serious cash squeeze. Rumors raced through
London that George Peabody and Company was about to fail, a prospect heartily
relished by rivals, who disliked the old American. Morgan had also earned the
displeasure of Barings by aggressively cutting prices on American securities and
trying to steal their accounts.
Now the major London houses told Morgan they would bail out the firm—but
only if Peabody shut down the bank within a year. When Morgan relayed this
patent blackmail to Peabody, the older man reacted “like a wounded lion.”23
Defiant, he dared them to bring down his firm. George Peabody and Company
was saved by an emergency credit line of £800,000 from the Bank of England,
with Barings a guarantor of the loan. The vengeful Peabody, who felt Barings
had mercilessly pressed him to pay outstanding bills, asked that the name of the
firm be stricken from a published list of banks rescuing his firm. For Peabody,
who had just made a resplendent return to America after a twenty-year absence,
the incident confirmed his innate pessimism. “It is not yet three months since I
parted from you, and left the country prosperous and the people happy,” he wrote
his niece. “Now all is gloom and affliction.”24
The 1857 panic made a deep impression on Morgan’s twenty-year-old son,
Pierpont, who had just started on Wall Street as an unsalaried apprentice at
Duncan, Sherman and Company, New York agent for Peabody. Tutored by
partner Charles Dabney, an excellent accountant, Pierpont learned to evaluate
ledgers and fathom the mysteries of the chaotic American banking system. Ever
since Andrew Jackson killed the second Bank of the United States in 1832, the
United States lacked a uniform currency. Each state had a separate banking
system, and in many places debts could be settled in foreign currency. Pierpont,
new to Wall Street, was vexed by rumors of his father’s pending default and
heard about the Bank of England rescue while visiting Cyrus Field’s office. His
later tolerance for the proposed Federal Reserve System has often been traced to
this early Bank of England bailout of his father’s firm.
It was a baptism by fire for the Morgan family. Shaken, the elder Morgan
became a more cautious and skeptical banker. He now demanded to see
statements from correspondent banks in America, even if it meant offending
them. And he began to lecture his son, often at wearisome length, on the need for
conservative business practice; the 1857 panic would be the text of many
sermons. “You are commencing upon your business career at an eventful time,”
he wrote. “Let what you now witness make an impression not to be eradicated . .
. slow &, sure should be the motto of every young man.”25 Junius Morgan
developed a lofty disdain for price competition and adopted the royal passivity
of the Rothschilds and the Barings, who refused to offer cut-rate terms: “If we
cannot keep the account on such a basis we must be content to let others outbid
us.”26
Another disaster soon followed. Like the French banques d’affaires or the
universal German banks, London merchant banks took equity stakes in ventures.
For instance, George Peabody and Company had helped to bankroll Sir John
Franklin’s expedition in search of the Northwest Passage. But its most farsighted
bet was a £100,000 investment in Cyrus Field’s transatlantic cable, which would
unite Wall Street and the City. The scheme looked inspired on August 16, 1858,
when Queen Victoria made the first cable call, to President James Buchanan. In a
burst of national pride, New York City engaged in two weeks of fireworks and
euphoric celebration. Peabody dizzily wrote to Field, “Your reflections must be
like those of Columbus after the discovery of America.”27 He spoke too soon,
however: in September, the cable snapped, the venture’s share prices plummeted,
and Peabody and Junius Morgan absorbed steep losses. Eight years would pass
before full service was restored.
Although Peabody was nominal head until 1864, Junius Morgan assumed
control of George Peabody and Company in 1859. In increasingly poor health,
Peabody took his first European vacation in twenty-one years. After the outbreak
of the American Civil War, Morgan traded Union bonds, which seesawed with
the outcome of each battle. After the Union army was routed at Bull Run, bonds
plunged, then rebounded sharply when Union troops stopped the Confederate
advance at Antietam Creek. Sending a telegram via Nova Scotia, Pierpont
alerted his father to Vicksburg’s fall in July 1863—in time for the elder Morgan
to profit from a sudden rise in American securities. Such calamity trading wasn’t
thought bloodthirsty or reprehensible among merchant bankers but had an
honored place in their mythology. As one Rothschild boasted, “When the streets
of Paris are running with blood, I buy.”28
Despite his Yankee sympathies, Morgan was stymied in undertaking Union
financing. After southern banks drained their deposits from the North, Lincoln
cast about for new sources of funds. With Lancashire textile mills closely allied
with southern cotton plantations, the City was cool to any large-scale operation
for the North. To finance the war debt, the president turned to Philadelphia
banker Jay Cooke—later dubbed a financial P. T. Barnum—whose agents fanned
out across America to sell war bonds in the first mass-market securities
operation in the country’s history. Among the buyers in London were George
Peabody and Junius Morgan. Yet the Civil War was the one major military
conflict in which the Morgans were handicapped by political circumstances: it
was a bonanza for German-Jewish bankers on Wall Street, who raised loans from
the numerous Union sympathizers in Germany. In future, the Morgans’ political
impulses would mesh perfectly with profitable opportunities.
Civil War years saw the metamorphosis of George Peabody from
Scrooge to Santa Claus. He had been a prototypical heartless banker, a onedimensional hoarder. As a contemporary said, “Uncle George, as Americans . . .
call him—was one of the dullest men in the world: he had positively no gift,
except that of making money.”29 Yet this dour man suddenly became prodigal in
his gifts; his philanthropy was as immoderate as his earlier greed. He found it
hard to break his miserly habits. “It is not easy to part with the wealth we have
accumulated after years of hard work and difficulty,” he confessed.30 Now a
lifetime of hoarding was disgorged in one compensatory binge, cleansing his
Yankee conscience. Perhaps as a young man Peabody had worked too much for
others and as an adult too much for himself. In any event, he could do nothing by
halves and again went to extremes.
By 1857, he had begun to endow a Peabody Institute in Baltimore. (Unlike
later Morgan benefactions, often anonymous and discreet, Peabody wanted his
name plastered on every library, fund, or museum he endowed.) In 1862, he
began to transfer £150,000 to a trust fund to build housing projects for London’s
poor. These Peabody Estates, with gas lamps and running water, would be a vast
improvement over the medieval poorhouses of Victorian London, and they still
dot the city. He deeded a five-thousand-share block of the Hudson’s Bay
Company to finance the operation. For this revolutionary act of generosity, he
became the first American to receive the Freedom of the City of London. “From
a full and grateful heart,” he declared at a Mansion House dinner, “I say that this
day has repaid me for the care and anxiety of fifty years of commercial life.”31
Peabody’s openhandedness became so proverbial that he was soon besieged with
a thousand begging letters a month.
During Peabody’s last years, the scope of his charity grew dazzling. He
endowed a natural history museum at Yale University, an archaeology and
ethnology museum at Harvard, and an educational fund for emancipated
southern blacks. For this last, he handed over a $l-million batch of defaulted
Mississippi and Florida bonds, hoping these states would someday resume
payment and enrich the fund. There were further bequests for the housing
THE
projects, finally amounting to £500,000. As Peabody turned into a one-man
welfare state, admirers saw celestial virtues in this former skinflint. Victor Hugo
remarked, “On this earth there are men of hate and men of love. Peabody was
one of the latter. It is on the face of these men that we see the smile of God.”32
Gladstone said that he “taught men how to use money and how not to be its
slave.”33 Queen Victoria tried to honor him with a baronetcy or a knighthood,
but Peabody—as if a stranger to worldly pleasures—declined this one. Instead,
the queen dashed off a fulsome personal note from Windsor Castle, praising
Peabody’s “princely munificence” to London’s poor and enclosing a miniature
portrait of herself, wearing the Koh-i-noor diamond and the decoration of the
Order of the Garter.34
Throughout this apotheosis, Peabody never extended his charity to Junius
Morgan. In 1864, their ten-year agreement expired, and Peabody retired. At this
point, according to the promise Peabody had made to lure Morgan to London,
the junior partner was to receive the use of his name and possibly his capital.
Instead, Peabody decided to pull both his name and his capital from the concern.
Perhaps in his new sanctity he wanted to erase his name from the financial map
and enshrine it in the world of good works. But to Morgan, as later recorded by
his grandson, “it was, at that time, the bitterest disappointment of [his] life that
Peabody refused to allow the old firm name to be continued.”35 Junius
reluctantly renamed the firm J. S. Morgan and Company (its name until Morgan
Grenfell was formed in 1910). Peabody also forced Morgan to buy the office
lease at 22 Old Broad Street on onerous terms. J. P. Morgan, Jr., wrote, “My
Grandfather always used to say that Mr. Peabody had been very hard on him as
to the price of the lease.”36 Of course, Junius Morgan’s anger toward Peabody
was tempered by the extraordinary profits they had divided—over £444,000
earned in a ten-year period. And he had inherited the chief American bank in
London.
When Peabody died, in 1869 at age seventy-four, the British government dug
a grave for him in Westminster Abbey, but his deathbed words, “Danvers—
Danvers, don’t forget” deprived London of his remains. The Prince of Wales,
later Edward VII, unveiled a statue of Peabody behind the Royal Exchange—a
rare honor, considering the scarce space in the City. Even in death, Peabody
managed to foster Anglo-American harmony. The British had just built a
forbidding warship, the Monarch, whose sheer size caused consternation in
America and scare talk of the vessel’s being used to demand tribute from
American cities. The young Andrew Carnegie sent an anonymous cable to the
British cabinet: “First and best service possible tot Monarch, bringing home
body Peabody.”37 Whether this was the genesis of the idea or not, Queen
Victoria shipped Peabody’s corpse to America aboard the ironclad. The ship
rigged up a maudlin funeral chapel, with tall candles burning above a blackdraped coffin. In America, the ship was met by Admiral Farragut’s squadron.
Pierpont Morgan, in charge of funeral arrangements, devised a tribute of martial
splendor, with British and American soldiers marching together behind the
financier’s coffin.
Before leaving Peabody, we might note an exchange about him within the
House of Morgan in 1946. Thomas W. Lamont, chairman of J. P. Morgan and
Company, asked Lord Bicester, senior partner of Morgan Grenfell, for a
photostat of Queen Victoria’s letter thanking Peabody for aiding London’s poor.
Two years from his death, Lamont was in a nostalgic mood, but Lord Bicester
enjoyed shocking the unsuspecting:
I have always understood that Mr. Peabody, though known as a great
philanthropist, was one of the meanest men that ever walked. I do not know
if you ever saw the statue of him sitting on a chair behind the Royal
Exchange. Old Mr. Burns told me once that when subscriptions were
invited in the City to erect a statue there was so little enthusiasm that there
was not sufficient money to pay for the chair, and Mr. Peabody had to pay
for it himself. When I first came here the head of our office was Mr.
Perman, and I remember when he had been here sixty years Teddy
[Grenfell] and I gave all the staff a dinner at the Saucy, and we took them to
a Music hall afterwards, and old Mr. Perman was at his desk at nine o’clock
the next morning. He knew George Peabody’s form well and used to tell
Jack [Morgan] many stories. . . indicative of his meanness. I always
understood that when he retired he announced he was leaving his money in
the business—and at once proceeded to take it out. I believe he left several
illegitimate children totally unprovided for.38
CHAPTER TWO
POLONIUS
IF Emerson was correct that “an institution is the lengthened shadow of a
man,” then the shadow-caster of the House of Morgan was Junius Spencer
Morgan. Pounded into his son, Pierpont, his precepts codified Morgan
philosophy for a century. He was a fussbudget father, fretting over son and bank,
a figure so massive and willful that only his son, retrospectively, could reduce
him to merely the “father of J. Pierpont Morgan.” As one journalist said, “The
Morgans always believed in absolute monarchy. While Junius Morgan lived, he
ruled the family and the business—his son and his partners.”1 Until Junius died,
in 1890, his massive shadow dominated his son’s life.
Junius was cool and steady and seldom showed his hand. He had a dry wit and
a genial manner and employed iron discipline. His friend George Smalley
praised his “grave, strong beauty” and his “eyes full of light” but noticed the
face ended “in an immovable jaw, all will.” Sometimes the stone facade broke
down, but imperceptibly. “Once or twice I have seen him angry, and he showed
his anger by a sudden restraint of speech and of manner.”2 That was as far as
Junius betrayed emotion.
Where George Peabody bore the scars of early poverty, Junius Morgan had the
smooth manners and poise of inherited wealth. Among the possessors of great
American fortunes, the Morgans boasted a uniquely pampered lineage. They
didn’t claw their way up from poverty or legitimize a bloody frontier fortune
with later respectability. By the early nineteenth century, they were well-to-do,
enjoying a cushion of security generations thick. Affluent and well-bred, they
weren’t rejected by European aristocracy, as were the Vanderbilts. One finds it
hard to track down those poor, benighted Morgans whose early suffering made
later wealth glorious. By no accident, the family produced defenders of the
social order whose vices sprang from too much comfort and too little exposure
to ordinary human misery.
The first Morgan in America was Miles, who emigrated from Wales to
Springfield, Massachusetts, sixteen years after the Mayflower landed at
Plymouth. He prospered as a farmer and fighter of Indians, spawning
generations of land-owning Morgans. His descendant Joseph Morgan fought
with Washington’s army during the American Revolution. In 1817, Joseph sold
his farm in West Springfield, Massachusetts, and moved to Hartford,
Connecticut, which would become the Morgans’ ancestral home. Joseph had a
refined air, a straight, delicate nose, and coolly discerning eyes. Like later
Morgans, he was a hymn-singer and Bible-thumper and subscribed to the
Wadsworth Atheneum, the city’s new art museum. As a businessman, he
strikingly resembled his progeny: he bought a stagecoach line and the Exchange
Coffee House, on whose premises he helped to organize the Aetna Fire
Insurance Company. In irrepressible Morgan style, he added the City Hotel,
invested in canal and steamboat companies, directed a bank, and helped finance
the Hartford and New Haven Railroad, whose grisly train wrecks would haunt
his descendants. Joseph made his great windfall in December 1835, when a fire
in the Wall Street area destroyed over six hundred buildings. As an Aetna
founder, he insisted that the firm pay customers promptly and even bought up
Aetna stakes from investors who hesitated to pay. Joseph Morgan’s quick action
made the firm’s reputation on Wall Street and later enabled it to triple its
premiums.
To Joseph’s wife, Sarah, the Morgans owe those strange eyes—fearful,
querulous, and burning—that shone with such famous intensity in the face of
young Pierpont. Sarah had a fleshy chin and bulbous nose, adding a peasant
roundness to the patrician Morgan face.
In 1836, Joseph bought his son, Junius, a partnership in the Hartford drygoods house of Howe and Mather. That same year, Junius married Juliet
Pierpont, daughter of the Reverend John Pierpont of Boston, pastor of the Old
Hollis Street Church. This union of Morgan and Pierpont joined together in their
infant son, John Pierpont, born in 1837, a wildly improbable set of genes. A poet
and preacher, the Reverend John Pierpont was a fiery abolitionist and friend of
William Lloyd Garrison and Henry Ward Beecher. With craggy face and tousled
hair, he spurned the Morgans’ Yankee trader values. He was a failed merchant
from an old New England family and had a romantic temperament and a
crusading spirit. He engaged in a bitter public row with his Boston parishioners
and was charged with “moral impurity” for speaking the word “whore.”3With
the church cellar rented to a local rum merchant, the congregation found his
views on temperance subversive. It was said that in the heat of argument, the
Reverend Pierpont’s prominent nose became inflamed—as would his
grandson’s. To Rev. Pierpont, the Morgans probably owe the streak of repressed
romanticism and moralism in their later history. Not by chance would the House
of Morgan fancy itself Wall Street’s conscience and attract many sons of
preachers and teachers.
When Joseph died, in 1847, he left an estate of more than $1 million. Four
years later, Junius cashed in his stake in Howe and Mather for an estimated
$600,000 and moved to Boston to hunt bigger game. As partner in the restyled J.
M. Beebe, Morgan and Company—the city’s largest mercantile house—he
operated on a global scale, exporting and financing cotton and other goods
carried by clipper ships from Boston harbor. It was here that he came to George
Peabody’s attention.
By this point, Junius’s son Pierpont already seemed quite contradictory. One
side of him was pure homo economicus. As a small boy, he was restricted to a
twenty-five-cent weekly allowance and minutely noted candy and orange
purchases in a ledger. At twelve, he charged admission to a viewing of his
diorama of Columbus’s landing. As an adolescent, he was ardent and highspirited but also petulant and prone to sudden mood swings. He was afflicted
with facial rashes, which made him morbidly self-conscious, and his childhood
was marred by constant headaches, scarlet fever, and ailments of mysterious
provenance. Perhaps the contrast between his own steady nature and Pierpont’s
unruly temper made Junius fret unduly about his boy. With granite will, he began
to mold Pierpont, instructing him to associate with those of his grammar-school
classmates “as are of the right stamp & whose influence over you will be good.”4
This Polonius-like voice would drone on for decades.
When his father moved the family to Boston, Pierpont enrolled in the English
High School there, from which he graduated in 1854. While there, he suffered a
severe bout of inflammatory rheumatism and in 1852 spent several months
recuperating in the Azores, the illness left one leg shorter than the other. For the
rest of his life, assorted ailments would confine Pierpont to bed several days
each month. He was a curious study in contrasts, sometimes sickly, sometimes
capable of great bursts of energy that would exhaust him and send him back to
bed.
Early on, Pierpont figured in his father’s business plans. Junius knew that the
houses of Baring and Rothschild operated largely as family enterprises,
grooming sons to inherit their respective businesses. In fact, the Rothschild
insignia of five arrows commemorated five sons dispatched to five European
capitals. The British economist and journalist Walter Bagehot noted, “The
banker’s calling is hereditary; the credit of the bank descends from father to son;
this inherited wealth brings inherited refinement.”5 Since merchant bankers
financed foreign trade, their bills had to be honored on sight in distant places, so
their names had to inspire instant trust. As a twentieth-century Hambros Bank
chairman would put it, “Our job is to breed wisely.”6 The family structure also
guaranteed the preservation of the bank’s capital.
Besides his three sisters—Sarah, Mary, and Juliet—Pierpont had a younger
brother, Junius, Jr., fondly nicknamed “the Doctor,” who died in 1858 at age
twelve. So it was onto Pierpont, the lone surviving male heir, that Junius Morgan
projected his imperial ambitions, in preparation for which he provided him with
a gentlemanly education. To allow him to attain fluency in foreign languages and
to season him for global business, Junius in 1854 sent Pierpont to the Institut
Sillig, a boarding school on Lake Geneva. This was followed by a stint at the
German university in Gottingen in 1856, where Pierpont enjoyed the bluff
camaraderie of student clubs. He was a dashing, foppish boy, partial to polka-dot
vests, bright cravats, and checkered pants. Already self-conscious about his skin
eruptions, he shied away from the popular student duels that might disfigure his
face.
Throughout his life, Pierpont had little intellectual curiosity or aptitude for
theorizing, and at Gottingen he excelled most at math. Beneath a rough boyish
swagger, he was sensitive to art. He also collected autographs of presidents and
famous figures and broken shards of stained glass found in cathedral closes. In
later years, these fragments would be embedded in the windows of the West
Room of his famous library.
Junius Morgan feared his son’s hot temper and moaned to friends, “I don’t
know what in the world I’m going to do with Pierpont.”7 He said the boy needed
“restraining” and tried to inculcate a strong sense of responsibility.8 When
Pierpont was twenty-one, Junius told him he was “the only one [the family]
could look to for counsel and direction should I be taken from them . . . I wish to
impress upon you the necessity of preparation for such responsibilities—have
them ever in view, be ready to assume & fulfill them whenever they shall be laid
upon you.”9 Weighty injunctions for a young man.
After Pierpont started work at Duncan, Sherman during the panic year of
1857, he displayed awesome but unsettling precocity. While visiting New
Orleans in 1859, he entered into a rash, unauthorized speculation. He gambled
the firm’s capital on a boatload of Brazilian coffee that had arrived in port
without a buyer. He bought the entire shipment and resold it at a quick profit.
This first proof of his supreme confidence petrified the gray men of Duncan,
Sherman. It was probably on the basis of this incident that the firm refused to
make Pierpont a partner. In 1861, he struck off on his own, forming J. P. Morgan
and Company at 54 Exchange Place with his cousin James J. Goodwin. At age
twenty-four, he was now New York agent for George Peabody and Company.
(This J. P. Morgan and Company would be short-lived. The name would be
revived in 1895.) A photo of Pierpont from this period shows he had lost his look
of teenage frivolity. He was now burly and handsome, with handlebar mustache,
full lips, and an intense gaze. Unlike his father’s composed look, his already
seemed restless.
An important part of Pierpont’s duties in New York was supplying his father
with political and financial intelligence. Merchant banks required news about
government financings or the credit of client companies and placed a premium
on such information. The Rothschilds had a celebrated covey of carrier pigeons
and courier boats at Folkestone. In a famous lament, Talleyrand sighed, “The
English ministry is always informed of everything by Rothschilds ten to twelve
hours before Lord Stuart’s dispatches arrive.”10
Pierpont began drafting lengthy letters to his father, outlining political and
economic conditions in America and posting them on Nassau Street. He reserved
Tuesday and Friday evenings for these reports. For thirty-three years, Junius not
only digested them but bound them, like sacred relics, and set them on his shelf.
Whether less sentimental than Junius—or else aghast at their contents—Pierpont
burned the collection in 1911, twenty-one years after his father’s death.
For these thirty-three years, Junius and Pierpont had an intense relationship,
despite the geographical distance. They managed to spend an enormous amount
of time together: in the fall of each year, Junius made an annual trip to the
United States of up to three months, and in the spring Pierpont made his ritual
London pilgrimage. But their separation at other times of the year only
heightened Junius’s anxiety that he couldn’t tame his son’s wayward nature. He
pumped the poor boy full of endless advice and was full of maxims. No aspect of
Pierpont’s life was too trivial to be overlooked. “You are altogether too rapid in
disposing of your meals,” he told him. “You can have no health if you go on in
this way.”11
During the Civil War, Pierpont confirmed his father’s fears concerning his
rashness. Amid a mad rush of Wall Street profiteering, Pierpont financed a deal
in 1861 that, if not unscrupulous, showed a decided lack of judgment. One
Arthur M. Eastman purchased five thousand obsolete Hall carbines, then stored
at a government armory in New York, for $3.50 apiece. Pierpont loaned $20,000
to a Simon Stevens, who bought them for $11.50 each. By “rifling” these
smooth-bore weapons, Stevens increased their range and accuracy. He resold
them to Major General John C. Fremont, then commander of the Union forces in
Missouri, for $22 each. Within a three-month period, the government had bought
back its own, now altered, rifles at six times their original price. And it was all
financed by). Pierpont Morgan.
The extent of Pierpont’s culpability in the Hall carbine affair has been
endlessly debated. The unarguable point is that he saw the Civil War as an
occasion for profit, not service—though he had an alternative role model in his
grandfather, the Reverend Pierpont, who served as a chaplain for the Union army
when it was camped on the Potomac. Like other well-to-do young men, Pierpont
paid a stand-in $300 to take his place when he was drafted after Gettysburg—a
common, if inequitable, practice that contributed to draft riots in July 1863. (A
future president, Grover Cleveland, also hired a stand-in, although he had a
widowed mother to support.) In later years, Pierpont would humorously refer to
his proxy as “the other Pierpont Morgan,” and he subsidized the man. During the
war, he also leapt into wild speculation in the infamous “gold room” at the
corner of William Street and Exchange Place. Prices would gyrate with each new
victory or defeat for the Union army. Pierpont and an associate tried to rig the
market by shipping out a large amount of gold on a steamer and earned $160,000
in the process.
If Pierpont seemed corrupted by rowdy wartime Wall Street, he could also be
unexpectedly tenderhearted. In 1861, the year of the Hall Carbine Affair,
Pierpont, then twenty-four years old, had a quixotic love affair with Amelia
Sturges, a frail girl with oval face and hair parted down the middle whom
Pierpont had known for two years. Her father was a patron of the Hudson River
school of artists, and her mother was an excellent pianist. When Pierpont wed
Mimi in the parlor of her family’s East Fourteenth Street townhouse, she already
had a terminal case of tuberculosis. Pierpont had to carry Mimi downstairs and
prop her up during the ceremony. Guests watched this vignette from a distance,
through an open door. After the ceremony, Pierpont carried his bride to a waiting
carriage.
They had a touching if bizarre honeymoon, Pierpont toting Mimi around the
warm Mediterranean ports and hoping to restore her health. When she died in
Nice four months later, Pierpont was inconsolable, and his pious adoration for
her never ceased. When he afterwards bought his first painting, it was of a young
fey woman, and he hung it in an honored place over his mantle. The experience
with Mimi may have taught Pierpont the wrong lessons—a fear of his best
impulses, a need to stifle his deep-seated romanticism. Beneath their straitlaced
exteriors, the Morgans would always be a sentimental clan, their public reserve
often warring with powerful private emotions. Over fifty years later, Pierpont in
his will bequeathed $100,000 to endow a rest home for consumptives, called the
Amelia Sturges Morgan Memorial. Even his son, Jack, would regard the
memory of Mimi as sacred and to be discussed only in hushed tones.
Observing his son’s reckless dealings and startling choice of a wife, Junius
decided to take Pierpont’s life in hand. Between Pierpont and Junius Morgan,
there would be total loyalty but also a fierce contest of wills. In 1864, Junius
orchestrated an alliance between Pierpont, then twenty-seven, and Charles H.
Dabney, thirty years his elder, to form the new firm of Dabney, Morgan and
Company. Bolstered by capital from Junius, it would serve as his New York
agent. He would retain final control over the credits it issued and the clients it
selected. Dabney was expected to exert a steadying influence on Pierpont, and
for the next twenty-six years Junius kept a moderating father figure near his son.
In his private life, too, Pierpont fell into line. In May 1865, he married Frances
Louisa Tracy—Fanny, as she was known—daughter of a successful lawyer,
Charles Tracy, who later performed legal work for Pierpont. She was tall and
pretty, with a rosebud mouth. She had a taste for elegant gloves and earrings and
seemed thoroughly safe and respectable. If Mimi was a temporary madness,
Frances was a return to sanity. Yet it was Mimi whose memory Pierpont would
cherish, while the “practical” marriage to Fanny would prove the fiasco, causing
terrible pain to them both. Pierpont’s unrequited romantic longings would only
grow over the years until they later found other—and notoriously varied—
outlets.
father-son team of Junius and Pierpont Morgan came on the world
banking scene at a time of phenomenal expansion of banking power. We shall
call it the Baronial Age. It coincided with the rise of railroads and heavy
industry, new businesses requiring capital far beyond the resources of even the
wealthiest individuals or families. Yet, despite these tremendous needs for
capital, financial markets were provincial and limited in scope. The banker
allocated the economy’s scarce credit. His imprimatur alone reassured investors
that unknown companies were sound—there were no government agencies to
regulate securities issues or prospectuses—and he became integral to their
operation. Companies would come to be associated with their bankers. The New
York Central Railroad, for instance, would later be called a Morgan road.
In this phase of the Industrial Revolution, companies were dynamic but
extremely unstable. In an atmosphere of feverish growth, many businesses fell
into the hands of unscrupulous promoters, charlatans, and stock manipulators.
Even visionary entrepreneurs often lacked the managerial skills necessary to
convert their inspirations into national industries, and no cadre of professional
managers yet existed. Bankers had to vouch for securities and often ended up
running companies if they defaulted. As the Baronial Age progressed, the line
between finance and commerce would blur until much of industry passed under
THE
the control of the bankers.
With such leverage over companies, the leading bankers developed a superior
style, behaving like barons to whom clients paid tribute. They operated
according to a set of customs that we will call the Gentleman Banker’s Code.
The House of Morgan would not only transplant this code from London to New
York but would honor it until well into the twentieth century. Under this code,
banks did not try to scout out business or seek new clients but waited for clients
to arrive with proper introductions. They didn’t open branch offices and refused
to take on new companies unless the move was first cleared with their former
banker. The idea was not to compete, at least not too openly. This meant no
advertising, no price competition, and no raiding of other firms’ clients. Such an
arrangement worked to the advantage of established banks and kept clients in an
abject, dependent position. But it was a stylized competition—a world of
sheathed rapiers—not a cartel, as it often seemed. The elegance of the surface
often blinded critics to the vicious underlying relations among the banks.
No less than to industry, bankers dictated terms to sovereign states, and
countries, like companies, had their “traditional bankers.” Benjamin Disraeli
wrote of “the mighty loan-mongers on whose fiat the fate of kings and empires
sometimes depended.”12 Byron’s witty couplet claimed their “every loan . . .
seats a Nation or upsets a Throne.”13 The bankers acquired such power because
many governments in wartime lacked the sophisticated tax machinery to sustain
the fighting. Merchant banks functioned as their ersatz treasury departments or
central banks before economic management was established as a government
responsibility. The London banks didn’t lend their own funds but would organize
large-scale bond issues. Through conspiring closely with governments, they
acquired a quasi-official aura. Joseph Wechsberg has referred to merchant banks
operating “in the twilight zone between politics and economics.”14 This was turf
the Morgans would later claim as their own. It was also very lucrative turf, for
bankers to sovereign states might also handle their foreign-exchange transactions
and pay out dividends on their bonds.
Every London house could unfurl a scroll of illustrious state loans. From their
Saint Swithin’s Lane townhouse, the Rothschilds financed Wellington’s
peninsular campaign and the Crimean War. A familiar adage said that the wealth
of the Rothschilds consisted of the bankruptcy of nations. In 1875, Lionel
Rothschild would arrange the £4-million financing that permitted Britain to
wrest control of the Suez Canal from France. Disraeli laughingly confided to
Queen Victoria, “I am of the opinion, Madame, that there never can be too many
Rothschilds.”15
Besides bankrolling the Louisiana Purchase, Barings financed the French
indemnity payment after Waterloo, prompting a lapidary tribute from the due de
Richelieu: “There are six great powers in Europe: England, France, Prussia,
Austria, Russia, and Baring Brothers.”16 After the failure of Ireland’s potato crop
in 1845, the Peel government used Barings to buy American corn and Indian
meal to relieve the famine—so-called Peel’s brimstone. By the time of the Civil
War, Barings was the agent bank for Russia, Norway, Austria, Chile, Argentina,
Canada, Australia, and the United States. For their trouble, the grandees at 8
Bishops-gate were awarded with four peerages by the close of the nineteenth
century—Ashburton, Northbrook, Revelstoke, and Cromer.
Why this perfect mesh between merchant banks and statecraft? As private
partnerships, these small banks were free of prying depositors or shareholders
and could indulge their political biases. They didn’t have to submit to outside
examination, and their naturally discreet style made them ideal channels for
diplomacy. Because they financed overseas trade, they were far more
internationalist in outlook than the High Street bankers who financed British
industry and dealt largely with shopkeepers.
The rarefied world of the Rothschilds and the Barings was the one Junius
Morgan aspired to—a world hitherto barred to Americans. After Peabody’s
death, he needed some dazzling derring-do with which to leap into the top ranks
of Victorian finance. Only so much glory could be gained from trading Chinese
tea or Peruvian guano or selling iron rails to Commodore Vanderbilt. Now in his
late fifties, Junius had grown stout with wealth. He was an imposing six-foot
figure, with high forehead, beetling brow, and watchful eyes. As an early
American patron of Savile Row’s “bespoke” tailors, he dressed in suits
conservatively tailored by Poole’s.
With Peabody gone, he urgently needed to replenish his capital base, which
was still meager compared to the Rothschilds and the Barings. Yet he was
extremely selective about the business he did and had learned the need for
caution. As he lectured Pierpont, “Never under any circumstances do an action
which could be called in question if known to the world.”17
Junius’s big chance for a state financing came in 1870, when the Prussians
crushed French troops at Sedan in September, seized the emperor, Napoleon III,
and laid siege to Paris. After a republic was proclaimed, French officials
retreated to Tours and set up a provisional government. Otto von Bismarck, the
Prussian chancellor, tried to isolate the French diplomatically. When they
approached London for financing, he conducted a propaganda campaign,
blustering that a victorious Germany would make France repudiate its debt.
A rare opportunity opened up for an enterprising banker. This was one of the
few times in the century that financially self-sufficient France needed to raise
money abroad. Barings had floated Prussian loans and didn’t wish to upset
delicate relations by dealing with France; the Rothschilds dismissed the French
cause as hopeless. The City had lately been rocked by defaults in Mexico and
Venezuela, and nobody was in a particularly venturesome mood for foreign
loans. Enter Junius, who decided to float a syndicated issue for France of £10
million, or $50 million. The French hoped that by using an American banker,
they might also be better positioned to purchase American arms.
The French loan showed that he hid a riverboat gambler’s flair behind the
steely air. This would be Junius’s signature deal, complete with that obligatory
Rothschild touch—carrier pigeons. In backing France, he had to contend with
Bismarck, who was privy to his moves. It later turned out that the private
secretary of the French finance minister was a German spy and was feeding
Bismarck daily reports on their dealings. Because Junius couldn’t speak French
and wouldn’t take anything on faith, he brought over from France his son-in-law
and later partner Walter Hayes Burns to act as translator. Junius insisted that
every French document be accompanied by a certified translation.
An innovation in European finance was then enhancing the bankers’ power—
the syndicate, elite groups of banks that practiced what the French called haute
banque. Instead of floating bond issues alone, the banks pooled their capital to
share the risk of underwriting. Reflecting the extraordinary risks of the French
loan, a Morgan-led syndicate offered the bonds at 85. This was 15 points below
par—the value at which the bonds could later be redeemed. This sharp discount
was designed to coax a skittish public into buying. The French felt blackmailed
by these degrading terms, which they thought suitable for a Peru or Turkey. Yet
Junius hadn’t exaggerated the risks. After Paris fell in January 1871, followed by
the Paris Commune, the bonds dropped from 80 to 55, and Junius desperately
bought them to prop up the price, nearly wiping himself out. This was all very
strange for a man who had urged caution on Pierpont: he was betting the future
of his firm on one roll of the dice.
Whatever the risks, it must have been a heady experience for an American to
be swaggering like a Rothschild and playing with gigantic sums. The loan had its
full complement of theatrics. A brief Morgan Guaranty history still pulsates with
the excitement of the episode: “Some communications between Paris and
London were implemented by the use of a fleet of carrier pigeons. Several of
them, bearing capsules filled with text on tissue paper, actually completed their
journeys. One particularly bulky package of documents was sent from Paris to
London by balloon! ”18 Some pigeons were apparently shot down and gobbled
up by starving Parisians. This left French politicians in the dark during critical
moments in the bargaining.
When the war ended, the defeated French didn’t renege on the loan, as
Bismarck predicted. Instead, they prepaid the bonds in 1873, bringing them up to
par, or 100. As with Peabody and his Maryland bonds, Junius pocketed a fortune
from this sudden windfall. The loan netted him a whopping £1.5 million. This
vastly augmented his firm’s capital and propelled him into the upper ranks of
government financing. Now the name J. S. Morgan and Company would appear
frequently in “tombstone ads” (apparently so called because of their rectangular
shape and placement on newspaper obituary pages) announcing underwriting
syndicates.
George Smalley said that with the 1870 French loan, his friend Junius went
from being a successful man to a power in the City. His impressions of Junius at
this moment are telling. On the one hand, he was modest and breezily dismissive
about his triumph. He said he had researched the history of twelve French
governments since 1789, and “not one of these governments had ever repudiated
or questioned the validity of any financial obligation contracted by any other.
The continuing financial solidarity of France was unbroken.” But Smalley
wasn’t fooled by such nonchalance. He noted “a fire in his eyes as he spoke
which showed he was not insensible to the triumph he had won. Why should he
be? It was considered, and has ever since been considered, an event in the
history of English finance.”19
As Junius developed into the wealthiest American banker in London, he
acquired the trappings of magnificence. He lived in a Knightsbridge mansion, 13
Princes Gate, a five-story building of neoclassic design facing the south side of
Hyde Park. The Morgan household was very dignified. Attended by butlers, the
family dressed formally for dinner, which concluded with claret and Havana
cigars. It was also a pious place, with Junius lining up the servants each morning
for prayers. Following merchant-banking tradition, Junius dabbled in art
collecting and often visited galleries with Pierpont when his son was in town.
Junius’s friends said his home resembled a museum, with sixteenth-century
Spanish embroidery on the walls, silver-filled vaults, and an excellent collection
of paintings by Reynolds, Romney, and Gainsborough.
Seven miles away, in the London suburb of Roehampton, Junius purchased
Dover House, a ninety-two-acre estate with rolling lawns that swept down to the
Thames. It was a miniature kingdom. Its dairy flowed with fresh milk and cream,
its hothouses yielded blooms, gardeners tended strawberry beds, and children
played on playground swings. Dover House was rustic in a formal way, with
well-spaced trees and trimmed lawns. In a photograph from 1876, Junius is
playing tennis dressed in bowler hat and a three-piece suit and is clutching his
racket like a club; he looks incongruous in a recreational setting. Periodically he
performed his patrician duty and shot pheasants on a moor.
Junius—tall, sociable, self-confident—and his wife, Juliet Pierpont Morgan,
made an odd pair. She was a short, plain, buxom woman who grew increasingly
sickly and hypochondriacal. Often homesick, she frequently sailed to New York
to stay with Pierpont. While her husband blossomed into one of London’s
magnificoes and was blessed with robust health, Juliet became more feeble and
withdrawn. In her later years, she was an invalid, often closeted in an upstairs
bedroom. She seems to have suffered some form of premature senility. This
pattern of the sickly wife and the autocratic, headstrong husband would be
repeated in the life of their son Pierpont. It also set a pattern of private grief and
loneliness that would come to haunt the spectacularly successful Morgan family.
CHAPTER THREE
PRINCE
AS Junius Morgan’s Wall Street agent for thirty years, Pierpont moved with
the massed power of British capital behind him. A Wall Street jest said that his
yacht, the Corsair, flew the Jolly Roger above the Stars and Stripes, and the
Union lack above both. (Throughout his life, Pierpont would slyly hint at descent
from the pirate Henry Morgan.) The young Morgan resembled a burly
roughneck with a coat of British polish. Broad-shouldered and barrel-chested, he
had dark hair and a pugilist’s hands. Over six feet tall, he was something of a
dandy, now given to checkered vests. Where Junius had a hard and impenetrable
stare, Pierpont’s hazel eyes were sad and cloudy. Where his father had unfailing
composure, Pierpont was mercurial. In early pictures, he looks edgy, as if
spoiling for a fight.
There was plenty to fight about in the rough-and-tumble of the postwar
railroad boom. Everybody had a sense of immense enterprise ahead. “We are
going some day to show ourselves to be the richest country in the world in
natural resources,” Pierpont predicted during the Civil War. The railroads would
unlock the resources in the American wilderness. Perhaps no business has ever
blossomed so spectacularly: within eight years of the war’s end, railroad
trackage doubled to seventy thousand miles, a spree fed by tens of millions of
acres in federal land grants. More than just isolated businesses, railroads were
the scaffolding on which new worlds would be built. As Anthony Trollope noted
during an American visit, railroads “were in fact companies combined for the
purchase of land” whose value they hoped to increase by opening a road. Towns
sprang up along the tracks, settled by European immigrants imported by the
railroads.1
As speculation in rail shares grew frenzied, European investors were
stumbling about in the dark. Between Kansas and the Rocky Mountains,
schoolboy maps showed a blank space dubbed the great American desert.2
Europeans relied on their American agents to guide them through this financial
wilderness, and American bankers had to keep posted on developments. Soon
after completion of the first transcontinental railroad, in May 1869, Pierpont and
Fanny Morgan made an extended rail journey across the country, stopping to see
Mormon leader Brigham Young in Utah. A competition was already underway
on Wall Street between Jewish bankers, such as Joseph Seligman, who wooed
German investors with railroad shares, and Yankee bankers, such as Pierpont
Morgan, who drew on London money.
From the outset, railways were in a chaotic state as they covered the country
in a crazy-quilt expansion that frequently produced more roads than traffic.
Because of their exorbitant fixed costs, they should have been public utilities.
But this was impossible in an age of free-booting individualism. As a result,
assorted hucksters and rogues threw up twice the trackage actually needed. What
appeared to be solid investment one moment was revealed as so much watered
stock the next. In Henry Adams’s judgment, “The generation between 1865 and
1895 was already mortgaged to the railways and no one knew it better than the
generation itself.”3
Such anarchy could easily fire a moralistic young banker like Pierpont
Morgan. In his early years, he was exposed to many incorrigible Wall Street
rascals, including Daniel Drew, the rustic sharpster who sold Erie stock short
while sitting on the railroad’s own board (he was called the speculative director),
and Jay Gould, the small, swarthy, full-bearded financier who prodigally bribed
legislators as he vied for control of the Erie and other railroads.4 This was the
infamous era of the Tweed Ring, Jay Gould’s 1869 attempt to corner the gold
market, and other acts of larceny on a scale never before imagined. While Junius
inhabited the white-glove world of the City, Pierpont had to deal with Wall Street
squalor and found it alternately seductive and repellent. Confronted by
corruption, he saw himself as a proxy for honorable European and American
investors, a tool of transcendent purpose representing the sound men on Wall
Street and in the City. But what he saw as a moral crusade others might regard
simply as competing self-interest. In his early years, at least, he wasn’t always
clearly distinguishable from the robber barons he was supposedly contesting.
In 1869, Pierpont, aged thirty-two, was enlisted in a dispute over a small
upstate New York railroad that would establish his reputation as a self-assured
young banker, unafraid to dirty his hands. This corporate fight would dramatize
the transition of the American banker from a passive figure issuing shares for
companies to a strong, active force in managing their affairs. The line in
question, the 143-mile Albany and Susquehanna, was small and inconsequential.
It had only 17 locomotives and 214 cars and ran through the sparsely populated
Catskill Mountains between Albany and Binghamton, New York. Yet it became
a battleground for competing powers when Jay Gould decided it could advance
the fortunes of his Erie Railroad, the so-called Scarlet Woman of Wall Street.
Through this road, Gould hoped to sell Pennsylvania coal to New England and
also vie with the New York Central for freight from the Great Lakes.
To this end, Gould bought up a block of A&S stock, made an alliance with a
dissident wing of directors, and had his pet judge, George C. Barnard, suspend
the railroad’s founder, Joseph H. Ramsey, from the board. Ramsey countered by
having several Gould partisans judicially suspended in turn. In these early days,
corporate warfare was no mere euphemism, and the Ramsey and Gould forces
sometimes slugged it out directly rather than filing suits and obtaining
injunctions. In the Battle of the Susquehanna, Jim Fisk, a former circus
roustabout and Gould’s chief lieutenant, and his Bowery boys—thugs scraped
off New York’s streets and operating as Gould’s stooges—piled onto a train
heading east from Binghamton, their army numbering about 800 men. The
Ramsey forces loaded about 450 fighters onto a train heading west from Albany.
In a cinematic finale, the two trains crashed head-on at the Long Tunnel near
Binghamton. Their headlights were smashed, one locomotive was partly
derailed, and eight or ten people were shot before the Gould forces fled.
Governor Toots Hoffman summoned the state militia to stop the bloodshed.
On September 7, 1869, momentarily putting down their weapons, the Gould
and Ramsey forces converged on the annual board meeting of the A&S. Ramsey
—“a little, grey-headed, sallow faced gentleman, weighing about 115 pounds,
with a very bright eye”—had recruited the husky Pierpont, who had just returned
from his western trip; Pierpont bought six hundred shares of stock in the road for
Dabney, Morgan.5 Pierpont’s son-in-law Herbert L. Satterlee later claimed that at
the September 7 meeting, Pierpont hurled chubby Jim Fisk down a flight of
stairs. The story may be apocryphal. But the meeting was so tense that Ramsey,
who had hidden the subscription books in an Albany cemetery, had the
documents lowered into the room from a back window to keep them from the
hands of the Gould forces. In the end, the meeting was stalemated by competing
injunctions, with each side again claiming control of the road based on two
separate elections.
Under Pierpont’s tutelage, the Ramsey forces found a friendly judge in the
upstate town of Delhi, New York, who obligingly ousted the Erie slate. Pierpont
then advised the Ramsey forces, now back in control, to merge their railroad
with the friendly Delaware and Hudson line, which they accomplished in
February 1870. In settling the dispute, Pierpont made a move that marked his
subsequent financial maneuvers: he took payment, not simply in money, but in
power, becoming a director of the newly merged railroad. This first board seat
was a sign of things to come, starting an era in which bankers sat on corporate
boards and gradually came to rule them. Board membership would become a
warning flag to other bankers to stay away from a captive company. During the
1870s, Pierpont began to style himself as far more than a mere provider of
money to companies: he wanted to be their lawyer, high priest, and confidant.
This wedding of certain companies to certain banks—“relationship banking”—
would be a cardinal feature of private banking for the next century. It came about
not because bankers were strong but because companies were still weak.
life was now prosperous and settled. He was making the gigantic
salary of $75,000 a year. He and Fanny lived in a brownstone at 6 East Fortieth
Street, just across Fifth Avenue from the Croton Reservoir, which arose like a
vast Egyptian tomb on the site of today’s New York Public Library. The Morgan
home was comfortable and cluttered, furnished with rugs, heavy mahogany
furniture, and gilt-framed pictures crowding one on top of the other. In 1872,
Pierpont bought Cragston, a country retreat on the Hudson River near West
Point. A three-story white Victorian house with rambling porches, its grounds
comprised several hundred acres of spectacular river scenery and was Pierpont’s
answer to Junius’s Dover House. There were horse stables, a dairy, tennis courts,
and kennels for breeding collies. (When the collies got boisterous, he switched to
breeding blooded cattle.) From April to October, Pierpont commuted to Wall
Street, crossing the river on his steam launch, the Louisa, which seated about
eight people. Then he took the train into Manhattan. The Morgans now had three
children, Louisa, born in 1866, John Pierpont, Jr., or Jack, born in 1867, and
Juliet, born in 1870. Before long, they would add another daughter, Anne.
Behind the aura of comfort and precocity, Pierpont was a troubled young man.
He continued to be bedeviled by headaches, fainting spells, and skin flare-ups. In
1871, his partner, Charles Dabney, retired and their partnership was dissolved.
Not for the last time, Pierpont contemplated retirement. As if unable to stop his
own ambition, he would assume tremendous responsibility, then feel oppressed.
He never seemed to take great pleasure in his accomplishments, and for the rest
of his life, he craved a restful but elusive peace.
With Dabney retiring, Junius needed to find a partner for Pierpont. He also
wanted to broaden the House of Morgan beyond its New York-London axis and
strengthen its international securities business. Although we think of global
finance as a modern invention, Victorian merchant banks were already
multinational in structure and cosmopolitan in orientation. Instead of branch
offices, they set up interlocking partnerships in foreign capitals—precisely what
Junius now decided to do. In January 1871, he was approached in London by
Anthony J. Drexel regarding an affiliation between his Philadelphia bank and the
PIERPONT’S
Morgans. Among the Philadelphia banks, Drexel’s was second only to Jay
Cooke’s in government finance. Junius was already Drexel’s London
correspondent. As when George Peabody approached him, a financial fortune
was being laid at Junius’s feet. He was not only the ablest American banker of
his day; he was also the luckiest.
Son of Francis M. Drexel, an itinerant Austrian portrait painter turned
financier, Tony Drexel at forty-five was slim and refined with a smooth
forehead, domed head, mild eyes, and handlebar mustache. At the time, Wall
Street was shaping up as a provider as well as importer of capital as financial
power gravitated from Philadelphia and Boston to New York. Sensing this
seismic shift, the influential Drexel wished to fortify his New York operations.
As before with Charles Dabney, Junius hoped to hedge the young Pierpont with
safeguards and place him under the protective tutelage of an older man. So he
suggested to Drexel that he take on Pierpont as his chief partner in New York.
However prodigious Pierpont’s gifts, he was still clay modeled by his father’s
hands. Junius urged him to respond to any invitation from Drexel. Hence in May
he dutifully traveled to Philadelphia, dined with Drexel, and chatted with him
after dinner. He returned to New York with a partnership agreement scribbled on
an envelope. According to the deal, Pierpont would become a partner of Drexel
and Company in Philadelphia and Drexel, Harjes in Paris. He would also
manage a New York partnership called Drexel, Morgan and Company. The order
of the names reflected the importance of the partners. Tony Drexel and his two
brothers, Francis and Joseph, were worth about $7 million, while Pierpont had a
puny $350,000. To even the score, however, Junius pumped in $5 million.
Pierpont always acknowledged his debt to his father—he never pretended to be
self-made—and later told New York governor Grover Cleveland, “If I have been
able to succeed in the station of life in which I have been cast, I attribute it more
than anything to the endorsement of my father’s friends.”6 The new Drexel,
Morgan was the forerunner of J. P. Morgan and Company.
Before signing the deal, Pierpont laid down a curious condition—that he delay
working on the new partnership. Far from itching to start, he felt a need to
recuperate from emotional and physical travail. Apparently he was on the edge
of a nervous breakdown. Under doctor’s orders, he took a fifteen-month
vacation, traveling to Vienna and Rome and sailing up the Nile. At work,
Pierpont could never relax and developed a powerful urge for escape. He would
vacation three months each year and joked that he could perform twelve months
of work in just nine months. His son-in-law Herbert Satterlee later wrote, “He
seemed to feel better when he was actually travelling than when they settled
down anywhere.”7 In the late 1870s, when Pierpont tried to flee work by taking a
vacation in Saratoga, New York, a blizzard of business letters and telegrams
trailed after him. “There is only one way of getting real rest,” he told Junius,
“and that is to get on board of a steamer.”8
Two years after its debut, in 1873, Drexel, Morgan moved to the corner of
Wall and Broad streets. It would be the most celebrated address in banking, the
financial crossroads of America. Tony Drexel had bought a parcel of land across
the street from the New York Stock Exchange for $349 a square foot, which
stood as a record for the next thirty years. He built a heavily ribbed marble
building with mansard roof, dormer windows, and ornate facade and allegorical
figures above the doorway; the six-story building was one of the city’s first with
an elevator. Splendidly symbolic, its unusual catercorner entrance
simultaneously faced the Subtreasury Building on Nassau Street (the most
important branch of the U.S. Treasury system) and the Stock Exchange on Wall
Street. Appropriately, Drexel, Morgan would specialize in both railroad and
government finance and occupy a pivotal place between Wall Street and
Washington.
From a personal standpoint, the Drexel-Morgan match wasn’t smooth.
Pierpont was already gruff and difficult and insisted on having his own way.
Joseph Seligman saw him as “a rough, uncouth fellow, continually quarreling
with Drexel in the office.”9 But the merger worked just as Junius had planned in
terms of tempering Pierpont’s xcesses. An early Dun and Company report said,
“This young man is smart and is perhaps the most venturesome member of the
firm but he is kept in check by the Drexels.”10
The merger with the Drexels gave the Morgans new international breadth. In
1868, Drexel had sent John J. Harjes of Philadelphia to set up a Paris
partnership, which performed with elan during the Paris Commune, switching
operations to Switzerland to service American travelers and businessmen. (This
wartime role would later be quintessentially Morgan’s.) As social butterflies who
married into many prominent Philadelphia families, the Drexels also added a
high-society image to the Morgan bank, and the Philadelphia house would
always be a glamorous corner of the emerging empire. Through their
interlocking partnerships, the Morgans now had footholds in New York,
Philadelphia, London, and Paris. These would remain the brightest stars of the
Morgan constellation for a century.
after the Drexel-Morgan merger came an event that catapulted Pierpont
Morgan, age thirty-six, into the empyrean of American finance. In 1873,
SOON
Washington decided to refund, at lower interest rates, the $300 million in bonded
debt remaining from the Civil War. Until then, Jay Cooke—Tony Drexel’s main
Philadelphia rival—reigned as the white-bearded emperor of federal finance.
The self-made Cooke had started out as a bank clerk with a quick eye for
counterfeit money. At a time when government bonds were the exclusive
province of rich men and European banks, he marketed them to the masses.
During the Civil War, he pioneered in retail distribution, sending twenty-five
hundred “minute-man” agents to peddle Union bonds across America and
winning Lincoln’s gratitude. With his riches, Cooke built a fifty-two-room castle
outside Philadelphia. In the early 1870s, the phrase “rich as Jay Cooke” had the
same magic resonance as “rich as Rockefeller” would have in a later day.
Cooke seemed invincible to competitors—at least until he financed the
Northern Pacific Railroad in 1869. His promotion for $100 million in Northern
Pacific bonds was liberally spiced with invention, fraudulence, and political
bribery. To lure European settlers to towns serviced by the railroad, he created a
tissue of brazenly surreal lies. Colorful ads depicted fruit groves flourishing
along its Great Plains tracks—fantastic claims that won the railroad the
nickname of Jay Cooke’s Banana Republic. Cow towns were puffed up into vast
metropolises, and Duluth, Minnesota, was trumpeted to European immigrants as
the “Zenith City of the Unsalted Seas.”11 When grain prices fell after the FrancoPrussian war, the fortunes of the Northern Pacific and other railroads fell along
with them. Thus began Jay Cooke’s undoing. His vulnerability in relation to the
Northern Pacific would provide an opening for Drexel, Morgan to usurp his
exalted place in government finance.
In 1873, Cooke teamed up with two Jewish houses—Seligman’s on Wall
Street and the Rothschilds’ in Europe—to obtain the $300 million refunding
issue against a vigorous challenge from Drexel, Morgan; J. S. Morgan and
Company; Morton, Bliss; and Baring Brothers. Large-scale finance was
increasingly shaping up as a contest between powerful syndicates; the sums—
and the risks—were now too large for single houses to shoulder alone. The
Drexel, Morgan group contested the Cooke monopoly and also circulated
insidious rumors that Cooke needed victory in the refunding issue to recoup his
Northern Pacific losses. Tony Drexel, a close friend of President Grant,
proselytized through his partial ownership of the Philadelphia Public Ledger.
Bowing to intense pressure from the Drexel, Morgan group, the secretary of the
treasury awarded half of the issue to each syndicate, although the statusconscious Junius was disturbed by Cooke’s name preceding theirs on the
contract. The prominence of American banks in this display of federal financing
reflected the new postwar power of Wall Street.
The year 1873 was one of panicky markets that allowed the Morgans to leave
behind their reputation as relative outsiders and achieve a commanding position
in federal finance. Financial markets were at first unsettled by the scandal of the
Credit Mobilier, builder of the Union Pacific Railroad, and exposed as a giant
sinkhole of fraud and corruption. The scandal tarred the reputation of many
congressmen holding the ephemeral company’s stock. By August 1873, London
investors wouldn’t touch American bonds, one reporter said, “even if signed by
an angel of Heaven.”12 Then, debilitated by the Northern Pacific, the mighty
house of Jay Cooke failed on Black Thursday, September 18, 1873.
The failure ignited a full-blown Wall Street panic. For the first time since its
formation, the New York Stock Exchange shut its doors for ten days. The corner
outside the exchange became a wailing wall of ruined men. Diarist George
Templeton Strong noted that “the central focus of excitement was, of course, at
the corner of Broad and Wall Streets. People [were] swarming on the Treasury
steps looking down on the seething mob that filled Broad Street.”13 Pierpont
called in his loans and cabled Junius: “Affairs continue unprecedentedly bad.”14
Five thousand commercial firms and fifty-seven Stock Exchange firms were
dragged down in Cooke’s maelstrom, a cataclysmic experience for a generation
of Americans. “To my parents and to the outside world,” financial journalist
Alexander Dana Noyes would later recall, “the financial crash of September
1873 had been as memorable a landmark as, to the community of half a century
later, was the panic of October 1929.”15
By today’s standards, Wall Street looked almost pastoral: Trinity Church was
the tallest structure, and street lamps on the cobblestone streets stood higher than
many buildings. The six-story Drexel Building soared above its neighbors. Yet
after Jay Cooke’s failure, it was popularly seen as the street of sin, a place
responsible for corrupting the manners and morals of a pristine frontier nation.
Not for the last time, America turned against Wall Street with puritanical outrage
and a sense of offended innocence. Thomas Nast’s cartoons in Harper’s Weekly
showed heaps of slaughtered animals in front of Trinity Church, the church itself
scowling, with the words MORAL, I TOLD YOU SO emblazoned on its steeple. Wall
Street already had a way of being renounced once the party was over.
In much the same way as the Morgan bank would in 1929, Pierpont managed
a handy profit in the panic year of 1873. He made over $1 million, boasting to
Junius: “I don’t believe there is another concern in the country [that] can begin
to show such a result.”16 With Jay Cooke conveniently wiped off the map,
Drexel, Morgan stood, with miraculous suddenness, at the apex of American
government finance. Never again would Pierpont Morgan be an outsider, and
before long he would be the chief arbiter of the establishment. Drexel, Morgan
couldn’t immediately capitalize on its fame, however, since the 1873 panic
ushered in a period of extended deflation and depression, during which it
became hard to credit Junius’s injunction to “remember one thing always. . . .
Always be a ‘bull’ on America.”17
The House of Morgan’s future approach to business was shaped in the gloomy
days of 1873. The panic was a disaster for European investors, who lost $600
million in American railroad stocks. Stung by all the railroad bankruptcies,
Pierpont decided to limit his future dealings to elite companies. He became the
sort of tycoon who hated risk and wanted only sure things. “I have come to the
conclusion that neither my firm nor myself will have anything to do, hereafter,
directly or indirectly, with the negotiation of securities of any undertaking not
entirely completed; and whose status, by experience, would not prove it entitled
to a credit in every respect unassailable.”18 Another time, he said, “The kind of
Bonds which I want to be connected with are those which can be recommended
without a shadow of doubt, and without the least subsequent anxiety, as to
payment of interest, as it matures.”19This encapsulated future Morgan strategy—
dealing only with the strongest companies and shying away from speculative
ventures.
Under the Gentleman Banker’s Code, bankers held themselves responsible for
bonds they sold and felt obligated to intervene when things went awry. And the
railroads were going awry. Even before the 1873 panic, a new way of dealing
with railroad rascality had appeared, devised, improbably, by Jay Gould. When
investors boycotted an Erie bond issue in 1871, he proposed to bring in outside
coal, railway, and banking interests to run the railroad as “voting trustees” who
would control a majority of Erie stock. To placate the conservative side of Wall
Street and the City, he proposed Junius Morgan as one trustee. The plan was
stillborn but later was revived. By mid-decade, Junius was warning the president
of the Baltimore and Ohio Railroad that rate wars among railroads were
undermining investors’ confidence.20 The following year, when the Erie went
bankrupt, the irate bondholders shackled the road with a “voting trust” that
would run the operation. It was a pivotal moment—the revenge of the creditors
against the debtors, the bankers against the railwaymen. Later, in Pierpont’s
hands, the simple device of the voting trust would convert Morgan into
America’s most powerful man, placing much of the country’s railway system
under his personal control. Through such trusts, he would convert financiers
from servants to masters of their clients.
The story of Pierpont Morgan is that of a young moralist turned despot, one
who believed implicitly in the correctness of his views. Strong-willed and
opinionated, he had an unshakable faith in his own impulses—a quality that later
made him appear as a force of nature, a child of the Zeitgeist, making snap
decisions that were often eerily right. He differed from most of the Gilded Age
robber barons in that their rapacity stemmed from pure greed or lust for power
while his included some strange admixture of idealism. As he confronted an
economy that offended his sense of business propriety, his very conservatism
gave him a revolutionary zeal. He believed, quite arrogantly, that he knew how
the economy should be ordered and how people should behave. By no
coincidence, he was active in the Young Men’s Christian Association, which
discouraged gambling among the working class. He also sponsored revival
meetings at Madison Square Garden and backed the moral policeman Anthony
Comstock, who favored the covering up of nude statues.
Pierpont developed a reputation for snappishness and barking at people, a
propensity that grew with his fame. Even in letters to his father as early as the
1870s, he seemed committed to his own way of doing things and wrote less as a
servile son than as a highly confident business partner. In 1881, a report by R. G.
Dun and Company referred to Pierpont’s “peculiar brusqueness of manner” and
said it had “made him and his house unpopular with many.”21 He sat behind a
glass partition in the mahogany partners’ room at 23 Wall Street, chewing on a
big cigar and growling out “yes” or “no” when given offers on foreign exchange.
He wouldn’t haggle and presented his bids for foreign exchange on a take-it-orleave-it basis. He had a way of letting people cool their heels and knew all the
silent tricks of authority. With his clear-cut sense of right and wrong, he quickly
became accustomed to exercising leadership.
Not surprisingly, he had trouble delegating authority and low regard for the
intelligence of other people. He agonized over finding new partners, and people
never measured up to his inflated standards. To find suitable candidates in 1875,
he pored over business directories from New York, Philadelphia, and Boston—in
vain. “The longer I live the more apparent becomes the absence of brains—
particularly soundly balanced brains,” he told Junius.22 Once again, Pierpont
flirted with the notion of quitting banking and casting off the oppressive weight
of business. In 1876, when Joseph Drexel left the firm, Pierpont wanted to
follow him, but he held back, awaiting word of Junius’s plans. He was chained
to his bank by a sense of mission that never abandoned him. Perhaps never in
financial history has anybody else amassed so much power so reluctantly. J.
Pierpont Morgan was more exhausted than exhilarated by success. He didn’t
enjoy responsibility and never learned to cope with it.
Pierpont was a natural leader on Wall Street. Whatever the general public
might think of the Morgans, businessmen respected them for their honest
dealings. August Belmont, Sr., thought Pierpont “brusque but fair.”23 Andrew
Carnegie, who raised the money for his first rolling mill by brokering bonds to
Junius, told the story of how during the 1873 panic the Morgans sold his interest
in a railroad for $10,000. He already had $50,000 on deposit with Pierpont, and
when he showed up to claim his $60,000, Pierpont handed him $70,000 instead.
Pierpont said that they had underestimated his account and insisted he accept the
additional $10,000. Carnegie didn’t want to take the money. “Will you please
accept these ten thousand with my best wishes?” Carnegie asked him. “No,
thank you,” Pierpont replied. “I cannot do it.”24 Carnegie decided that in future
he would never harm the Morgans. Interestingly, Carnegie venerated Junius as
the model of the sound, old-fashioned banker, but there was always friction
between him and Pierpont. After one 1876 meeting with Carnegie, Pierpont
bluntly chastised him—“You used language very offensive in its character”—
and proceeded to rebut Carnegie’s statements about his firm’s role in a lawsuit.
The standing of Drexel, Morgan rose steadily through the 1870s. In 1877, a
congressional dispute held up payment due the army of General Miles, then
fighting the Nez Perce Indians out West. In a flamboyant gesture, Drexel,
Morgan volunteered to cash the army’s pay vouchers for a 1-percent commission
—which made Pierpont very popular with the soldiers. By 1879, the ascendant
Morgans were joining with August Belmont and the Rothschilds to market the
last Civil War refunding loan. The United States resumed specie payment that
year—that is, government notes were payable in silver or gold—and the issue
was a great success.
Far from being thrilled by this new parity with the Rothschilds, Pierpont was
offended by the supposed high-handedness of his partners. The more
conciliatory Junius insisted that the Rothschilds share in any syndicate, but
Pierpont’s enormous ego brooked no condescension. As he wrote his brother-inlaw Walter Burns, now Junius’s partner in London: “I need scarcely tell you that
having anything to do with Rothschilds & Belmont in this matter is extremely
unpalatable to us and I would give almost anything if they were out. The whole
treatment of Rothschild’s to all the party, from Father downwards is such, as to
my mind, no one should stand.”25 In fact, the Rothschilds had badly
miscalculated America’s importance to the future of world finance, and it would
prove an irremediable blunder. Their representative, August Belmont, bemoaned
their “utter want of appreciation of the importance of American business.”26
Now the Morgan star was on the rise, and within a generation it would outshine
that of both the Rothschilds and the Barings.
financial writer John Moody said that until 1879 Pierpont Morgan was
“merely the son of his grim-mouthed father.”27 Junius, all business, found it hard
to give up his all-consuming work. Now portly like “an East Indian merchant
prince in an old English play,” he appears slightly bent in photographs,
sedentary, heavy with care, gazing from beneath shaggy eyebrows.28 The airy
elegance of youth has settled into a craggy look of suspicion. In 1873, when he
reached sixty, Pierpont was already urging him to cut back his schedule. He
wrote, “It occurs to me to suggest that you need rest as much as I do, & I do not
quite see why you cannot also take two days away from office per week.”29
Junius wasn’t as rigidly attached to the office as Peabody, but he was
domineering and at times had only one partner.
The elder Morgan now began to reap the honors of a semiretirement. On
November 8, 1877, he enjoyed a last hurrah in his native country with a New
York dinner at Delmonico’s in his honor, sponsored by the city’s business
community. This impressive gathering of more than a hundred people numbered
John Jacob Astor and the elder Theodore Ropsevelt among its dignitaries.
Breaking a self-imposed ban on public appearances, Samuel J. Tilden, a former
governor of New York and just-defeated presidential candidate, presided.
Toasting Junius as America’s preeminent banker in London, Tilden lauded
Junius for “upholding unsullied the honor of America in the tabernacle of the
Old World.”30 As in Peabody’s day, American businessmen believed they had to
prove their worth in London. In reply, Junius said his lifelong crusade was that
no evil should be spoken of America. Nobody in those days talked of British
obligations or of nascent American power—only of how Americans should
please British creditors. Under Pierpont, the financial position of the two
countries would be strikingly reversed.
Pierpont’s relationship with his father was the most important in his life.
Junius was the sort of punishing father who built character by stinting on praise
and setting exacting standards, keeping up psychic pressure and always making
Pierpont prove himself. Tough and demanding, he produced a son who lashed
himself into ever greater exertion, only to lapse into sickness, fatigue, or
depression. Junius strengthened those already relentless impulses in Pierpont’s
nature—his overmastering need to achieve, his inordinate sense of responsibility,
his hatred of disorder. Yet the patriarchal Morgan clan permitted no rebellion,
only veneration of Father. Whatever fear and resentment Pierpont felt were
transmuted into exaggerated love, and such filial worship would be equally
THE
apparent in Pierpont’s own children and grandchildren.
Under his sometimes stern facade, Junius clearly adored Pierpont; the
obsessive grooming was a tacit acknowledgment of his son’s gifts. In 1876, he
decided to buy Pierpont a princely gift—Gainsborough’s portrait of the duchess
of Devonshire, possibly the world’s most popular painting at the time. The
Rothschilds had already bid for it, and Junius was prepared to top them by
paying Agnew’s of Bond Street $50,000. Before the sale was consummated,
however, the painting was stolen from Agnew’s. Even a £1,000 reward couldn’t
coax it back. Interestingly, when the painting resurfaced in 1901, Pierpont rushed
to buy it for £30,000, or $150,000. “If the truth came out,” he conceded
regarding the staggering price, “I might be considered a candidate for the lunatic
asylum.”31 It was a deeply sentimental homage to his father. At 13 Princes Gate,
the London townhouse he inherited from Junius, he hung the painting in the
cherished spot over the mantelpiece.
In 1879, Pierpont began to emerge from his father’s shadow and take charge
of major deals. He was picked to market the largest block of stock ever publicly
offered—250,000 shares of New York Central. It was a landmark event for the
Vanderbilts, who owned the railroad.
Commodore Cornelius Vanderbilt had died two years before, at eighty-three,
leaving a fortune of about $100 million. Though he rejected champagne as too
expensive in his last days, he probably ranked as America’s richest man. Crude
and tobacco chewing, a white-haired, red-cheeked rogue, he chased pretty maids
to the end. In his dotage, he fell under the influence of spiritualists and held
business talks with the late Jim Fisk, the tough whom Pierpont bested over the
Albany and Susquehanna, later killed by a rival suitor to his mistress.
Commodore Vanderbilt’s death was a pivotal moment in the shift of business
from family to public ownership—a transition rich in possibilities for Pierpont
Morgan. To keep his railroad empire intact, the Commodore bequeathed to his
oldest son, William Henry, 87 percent of New York Central stock. William was a
homely, torpid, thick-set man then in his late fifties whom the Commodore had
thought a dunce, berated freely, and exiled to a rude farm on Staten Island.
William certainly wasn’t groomed to manage the New York Central, which the
rough-hewn Commodore ran from a cigar box full of records.
The Commodore had merged eleven small railroads to form the forty-fivehundred-mile New York Central. It branched north from New York City to
Albany and then swept west to the Great Lakes, opening the interior to eastern
ports. That such power would pass to William Vanderbilt appalled many people.
As William Gladstone wrote the Vanderbilt’s lawyer, Chauncey M. Depew, “I
understand you have a man in your country who is worth $100,000,000, and it is
all in property which he can convert at will into cash. The government ought to
take it away from him, as it is too dangerous a power for any one man to
have.”32 William didn’t help to reassure the public, and talked his way into the
history books with his retort: “The public be damned; I am working for my
stockholders.”33 The scope of Vanderbilt wealth spread fear and led to new calls
for public accountability.
What finally induced William Henry to reduce his New York Central stake
was publicity generated by New York State Assembly hearings in 1879, chaired
by A. Barton Hepburn. This investigating committee exposed secret deals made
by the New York Central, which gave preferential rates to oil refiners. As the
railroad’s chief executive and star witness, William Henry seemed ignorant or
evasive about the clandestine maneuvering; to counter bad publicity, he
approached Morgan, probably steered to him by Chauncey Depew. New York
State was beginning to levy punitive taxes against the New York Central, and it
was hoped that by having William Henry sell a huge chunk of stock, thus
making him a minority shareowner, the state legislature might relent.
That Vanderbilt chose the forty-two-year-old Pierpont to carry out this delicate
operation probably stemmed from the House of Morgan’s Anglo-American
structure. The principal concern was how to liquidate up to 250,000 shares
without collapsing the stock’s price. The Morgan-led syndicate demanded that
the Vanderbilts refrain from further sales for a year or until all syndicate shares
were placed. Another technique to mask the high-volume sale was to sell shares
abroad, and J. S. Morgan and Company took an initial 50,000-share block.
Junius could act with a discretion impossible on Wall Street. But it was no easy
sales job: British investors were still getting mauled by American railroads, and
dozens more foundered that year. The world economy was still depressed, with a
deep slump in foreign lending. And in the largely unregulated Baronial Age,
stock prospectuses were comically skimpy. The New York Central prospectus,
for instance, was grandly evasive: “The credit and status of the company are so
well known, that it is scarcely necessary to make any public statement.”34 With
so little information about a company, the reputation of the sponsoring bank was
critically important.
The New York Central deal had an unstated agenda. The syndicate allotted
20,000 shares to Jay Gould, 15,000 to Russell Sage, and 10,000 to Cyrus Field.
The inclusion of the odious Gould was part of a truce between Vanderbilt’s New
York Central and Gould’s Wabash, which had been feuding. At first, Vanderbilt
wasn’t thrilled about this, but Gould effectively blackmailed his way into the
syndicate by threatening to deprive the New York Central of Wabash traffic.
Gould also felt this association with the Morgans might cloak him in a new
respectability and perhaps entitle him to better credit in the future.
When Pierpont announced that he had mysteriously sold the huge block of
New York Central shares, much of it abroad, the financial world gaped with
wonder. The commission was a colossal $3 million. As he had during the feud
over the Albany and Susquehanna, Pierpont demanded a seat on the railroad’s
board of directors. As Junius told a partner, Pierpont was “to represent the
London interest”—that is, he would vote their proxies.35 Having long chafed at
American railroad brigands—even organizing a $300,000 defense committee to
protect their stake in Gould’s Scarlet Woman—European investors now exacted
their revenge. They were tired of railroad shenanigans—bankruptcy, skipped
dividends, poor management. So Pierpont Morgan would be their blunt
instrument with which to bludgeon American railroads into responsible behavior.
He had just the right clubman’s pedigree to inspire their trust. Once he chastised
a railroad president by exclaiming, “Your roads! Your roads belong to my
clients!”36 Because railroads required constant capital and exhausted the
resources of lone entrepreneurs, they were ripe for such banker domination.
As intended, the sale of William Vanderbilt’s stock dispersed ownership and
New York State slackened its assault against the road. But what the legislators
didn’t reckon on was that Pierpont would take those scattered shares and
effectively recreate their combined power in himself. He began placing his
golden manacles on the road. Besides voting all the London proxies, he insisted
that the New York Central maintain its $8 dividend for five years, with the
House of Morgan acting as fiscal agent to disburse those dividends in New York
and London. Before long, the New York Central would be a Morgan road and
the company whose shares were recommended most frequently by the Morgan
family.
In standing up foursquare for British creditors, Pierpont took the risky step of
identifying himself with a foreign power, creating confusion in the popular mind
as to his political loyalties. From this time on, he would often be criticized as a
mere appendage of London bankers, “a sort of colonial administrator; a
representative in America of the financial might of Britain.”37 This ambiguity
regarding the bank’s Anglo-American character would not only foster
considerable paranoia in the American heartland but would also create an
identity crisis within the Morgan empire itself.
In the meantime, while Wall Street buzzed over the New York Central affair,
Pierpont seemed to derive little joy from it. Far from puffing up with pride, he
sounded frazzled and dispirited. Yet again he contemplated giving up business.
An 1880 letter to his cousin Jim Goodwin shows how explicitly he began to
view himself as an instrument of larger purpose, the representative of masses of
investors. He wrote in part,
I am pressed beyond measure. I never have had such a winter—and although my
health has been better than I have had for many winters, still, so far as time is
concerned, I have had no leisure whatever. If it were simply my own affairs that
were concerned, I would very soon settle the question, and give it up; but with
the large interests of others on my shoulders, it cannot be done—and I do not
suppose there is any reason why it should, except that I often think it would be
very desirable if I could have more time for outside matters.38
Several commentators have noted Pierpont’s “savior complex,” as seen in his
private life by his marriage to the tubercular Mimi and in his business life by his
crusades for the “London interests.” In his own mind, he often acted to benefit
others, not simply for self-aggrandizement. This pronounced sense of martyrdom
made him extremely sensitive to criticism and also shielded him from true selfknowledge. In more extreme moments, it could invite megalomania. It was too
easy to camouflage selfish impulses by invoking a higher cause as the real cause.
At the same time, he wasn’t motivated by purely selfish motives and had larger
concerns than most bankers of his day. In future years, Morgan partisans would
praise the bank’s high ethical standards and reputation for fairness, while critics
would see the self-congratulatory rhetoric as sanctimonious and hypocritical.
And both sides would prove right.
CHAPTER FOUR
CORSAIR
IN 1882, Pierpont was making half a million dollars a year, and the power
balance within the Morgan empire began to tip from London to New York. To
mark their new financial status, Pierpont and Fanny sold their high-stooped
house on East Fortieth Street and bought a brownstone formerly owned by Isaac
N. Phelps (of Phelps, Dodge copper fame) at 219 Madison Avenue at the
northeast corner of Thirty-sixth Street, still in Manhattan’s Murray Hill
neighborhood. In this less crowded New York, the East River was still visible
from the house. At a time of sybaritic indulgence, when businessmen wallowed
in luxury and showy greed was all the rage, the Morgan home was imposing but
unadorned. Its entryway was flanked by Ionic columns, and a bay window
overlooked Madison Avenue. Heavy wood furniture and bric-a-brac filled the
rooms. In his high-ceilinged library, paneled in Santo Domin-gan mahogany,
Pierpont set his massive desk; it stood in the middle of the room as if the library
were the partners’ room of a merchant bank. This library was a place of such
forbidding gloom that the staff of twelve servants called it the “black library.”1
A novel feature of the Morgan household was electricity: it was New York’s
first electrically lighted private residence. Pierpont’s interest in the newly
harnessed source of energy stemmed from a business deal: in 1878, Thomas
Alva Edison had secured capital from the Morgan partners and other financiers
to establish the Edison Electric Illuminating Company. Unfortunately, the
infernal racket of the electrical generator was the bane of the Morgans’
neighbors. Downtown, Drexel, Morgan hosted early meetings of the Edison
company and in 1882 became the first Wall Street office to draw electricity from
Edison’s generating station at Pearl Street. Edison himself, in a Prince Albert
coat, attended the debut of electric power at 23 Wall Street, and he kept his
personal account at the bank.
The decision to stay in Murray Hill said much about the Morgans, who
scorned the nouveaux riches. When they opted for that neighborhood, the
“quality” were already moving uptown. Along Fifth Avenue, exhibitionist
moguls built gaudy palaces, their styles plundered from European chateaus.
From Fifty-first to Fifty-second streets, in elephantine splendor, rose William
Henry Vanderbilt’s mansion. Between Fifty-seventh and Fifty-eighth streets,
Cornelius Vanderbilt II, son of William Henry, built another palace on the
present site of Bergdorf Goodman.
Matthew Josephson has offered an unforgettable portrait of Gilded Age
vulgarity:
At Delmonico’s the Silver, Gold and Diamond dinners of the socially
prominent succeeded each other unfailingly. At one, each lady present,
opening her napkin, found a gold bracelet with the monogram of the host.
At another, cigarettes rolled in hundred-dollar bills were passed around
after coffee and consumed with an authentic thrill. . . . One man gave a
dinner to his dog, and presented him with a diamond collar worth $ 15,000.
At another dinner, costing $20,000, each guest discovered in one of his
oysters a magnificent black pearl. Another distracted individual longing for
diversion had little holes bored into his teeth, into which a tooth expert
inserted twin rows of diamonds; when he walked abroad his smile flashed
and sparkled in the sunlight. . . . ”2
A cross between Connecticut Yankees and London aristocrats, the Morgans
shrank from extravagance and shielded their lives from the newspapers. Like
European haute banque families, the Morgans were very private. Pierpont was
fanatic about his privacy and created an enduring image of a top-hatted tycoon
snarling and brandishing a stick at photographers. He belonged to nineteen
private clubs, most of the sort restricted to Anglo-Saxon Christian men, and
liked to mingle with old money. Unlike most members, he preferred building
clubs to using them. When some friends were blackballed from the Union Club,
he had Stanford White design the Metropolitan Club, which acquired the tag of
the Millionaire’s Club. Morgan was the first president. He was never a champion
of social justice or equality. When Theodore Seligman, son of one of New
York’s most prominent Jewish bankers, was blackballed from the Union League
Club in 1893, Pierpont didn’t protest the exclusion.
For Pierpont, a gentleman wasn’t a rich man but a member of a social caste.
He is associated with two statements about yachting that sum up his philosophy.
The first is that “you can do business with anyone but you can only sail a boat
with a gentleman,”3 and the second (perhaps apocryphal) that anyone who asked
about the cost of maintaining a yacht shouldn’t buy one. He had no time for
bounders or upstarts and despised the rich idle young men about town who
pursued women in clubs and cafés. The Morgans would always be strong
believers in the work ethic and the duties of the rich. They shunned the snobbish
version of high society embodied by Mrs. Astor and Ward McAllister’s “Four
Hundred”—supposedly the crème de la crème of New York society. In bluff,
manly style, Pierpont would have thought their balls prissy or vulgar.
A stuffed shirt, Pierpont liked to play chess or whist in the company of older,
settled men. He believed in convention and always wore social uniforms suitable
to the occasion—a bowler in winter, a Panama hat in summer, for instance. Even
when he toured Egypt in 1877 he wore knickerbockers, watch chain, and pith
helmet—the approved dress for the imperial tourist. “Physically and
intellectually, Morgan reproduced the traditional old-time London banker,” said
Alexander Dana Noyes.4 At the office, sitting at his rolltop desk, he wore stiff
winged collars, ascots, and heavily starched shirts—trademarks of the serious
banker. Only on sweltering days would he peel off his coat in the clublike
atmosphere. Like his father, he called himself a merchant and his firm a
countinghouse.
The early 1880s saw Pierpont’s metamorphosis from a dashing, muscular
young man into the portly tycoon with fierce visage and blown-up nose. Now in
his forties, he had graying hair and eyebrows and still sported a handlebar
mustache. The acne rosacea that had troubled him since adolescence took root in
his nose, enlarging and inflaming it until it became Wall Street’s most talkedabout protuberance. Over the years, it would take on a cauliflower texture. Many
people would notice a link between the nose and Pierpont’s fiery temper. The
nose certainly contributed to an insecurity and lack of social ease that were
thinly masked by a barking voice and tyrannical manner. The blustery tone
warned the world not to stare at the face. The nose must have been a terrible
handicap for a shy, self-conscious man with a tremendous need for female
admiration.
The body swelled with the face. In the 1880s, a generation of Wall Street
bankers was doomed by the wisdom of one William Evarts, who credited his
longevity to “never under any circumstance having taken exercise. ”5 Pierpont
usually played cards at a club after work rather than join in a game of tennis. He
occasionally lifted dumbbells, but in the late 1880s a medical sage advised him
to “stop exercise in every form. Never even walk when you can take a cab.”6
Pierpont loyally followed doctor’s orders, doing so while smoking Havana cigars
so big and black that they were dubbed Hercules’ clubs.7 A teetotaler by day—
the Morgan banks, by tradition, never served alcohol at lunch—he compensated
for this abstinence at night, progressing from predinner cocktails to sherry or
claret with meals and then to brandy or port afterward. More than husky, he
began to develop the sleek girth that symbolized contemporary tycoons.
Although a retiring person beneath his bossy manner, Pierpont maintained an
acquaintance with an extensive number of people. As a merchant banker, he had
to cultivate clients, and his business life was necessarily social. As a later Baring
Brothers chairman remarked of the business, “One of the facets of the art is that
if you do not get on with the people you are trying to advise, then you find
yourselves out the door.”8 And Pierpont engaged in a constant whirl of dinners
and civic functions.
These social pressures took their toll on his marriage, which had already
begun to turn into a cold, empty charade. Fanny Morgan was bashful and lacked
all relish for the social duties incumbent upon a merchant banker’s wife. Sad and
anxious, sweet and pious, she preferred reading, gossiping with friends, talking
about religion, and discussing social questions. She would be more popular with
both their children and their grandchildren than would the dagger-eyed Pierpont.
As his world grew larger, Fanny’s spirit was either not large enough or not
willing enough to fill that space with him. One also suspects that the couple
clashed as a result of their very similarity. Both were sensitive and high-strung
and too melancholic to provide much solace for the other. Fanny wasn’t a tonic
to Pierpont’s habitual moodiness, and he was doubtless much too busy to attend
to her needs. The practical marriage, the supposed antidote to the Mimi affair,
turned out to be dangerously impractical.
When Junius returned to London after his 1877 dinner, Pierpont followed. It
was the first Christmas he spent away from his children. The next year, Fanny
didn’t join him for the annual spring trip abroad, and he thereafter developed the
habit of traveling to Europe with one of his daughters, spending months apart
from his wife each year. These trips combined business and pleasure, and
provided cover for infidelity. As a high Victorian, he was proper and respectful
toward Fanny in public, even as their separations lengthened. Over time, she
would become morose and something of an invalid, pouring her heart out, to her
son Jack, among others.
Pierpont wasn’t the sort to suffer a loveless marriage lightly. As revealed by
his love for Mimi, he was highly romantic. He made pilgrimages to Mimi’s
grave in Fairfield, Connecticut, traveling there on the anniversary of their
wedding or of her death.9 His eyes cloudy and troubled, he had the soul of a
voluptuary beneath a banker’s custom-made suit. Even as he scared people away,
he was a lonely man, carrying around a vast despair that he couldn’t share with
anyone. His unhappy marriage probably plunged him deeper into business while
also denying him the pleasure of his triumphs.
connections in the realm of charity were almost as extensive as
his business interests. He preferred to give to religious, cultural, and educational
causes, not to social welfare agencies. He never tried to solve the problem of
poverty. He wanted to build institutions that were private and elite. He was an
original patron of the Metropolitan Museum of Art and the American Museum
of Natural History, had a box within the Metropolitan Opera’s Golden Horseshoe
(he liked romantic, florid operas, especially Il Trovatore), and was a major
contributor to Saint Luke’s Hospital. After Junius took in S. Endicott Peabody (a
distant relative of George’s) as a partner in London, Pierpont helped his son, the
Reverend Endicott Peabody, to buy ninety acres north of Boston for a new prep
school, Groton. Modeled after Rugby, it was supposed to develop a good, manly,
Christian character in its pupils. Ironically, it spawned that arch enemy of the
House of Morgan—Franklin Delano Roosevelt.
Through his friend and personal physician, Dr. James W. Markoe, Pierpont
gave one of his rare gifts to the immigrant masses then streaming into New
York’s Lower East Side. In 1893, Markoe told him of an operation he had
performed in a tenement kitchen to save an immigrant mother and her baby.
Pierpont counted out three hundred-dollar bills. “See that she gets the proper
care,” he said, handing the money to the doctor.10 Eventually Dr. Markoe
persuaded him to contribute over $1 million to erect a new building for the New
York Lying-in Hospital, where nurses would provide poor pregnant women with
food, milk, and prenatal care. Dr. Markoe became the director. As Pierpont
became more of a philanderer, his concern for unwed mothers would be the
subject of wisecracks about town, as well as stories of doctors at the hospital
who married Pierpont’s mistresses.
But the institution that most absorbed Pierpont was the Episcopal church,
which was part of the Anglican Communion. Religion united his values—
beauty, order, hierarchical relationships, veneration of the past, pageantry and
pomp. As New York’s most influential Episcopal layman, he attended the
church’s triennial conventions and participated in its abstruse debates. Religion
logically accompanied the moralism that drove him at work and lay at the
bottom of his indignation at American business practices. His maternal
grandfather was a preacher, his paternal grandfather a lusty hymn-singer, and his
father’s banking maxims were phrased in the epigrammatic style of sermons,
Junius often sounded like a frustrated clergyman: “Self-approbation and a
feeling that God approves will bring a far greater happiness than all the wealth
the world can give.”11 And Pierpont himself was wont to pontificate at 23 Wall
Street.
PIERPONT’S
For Pierpont and Fanny, Sundays were devoted to religion. They attended
Saint George’s Church on Stuyvesant Square, where Pierpont had been a
vestryman since 1868, and spent Sunday evenings singing hymns. To gratify
Fanny, Pierpont also attended Wednesday evening sessions of the Mendelssohn
Club, a choral group. In his early years, he had a strongly prudish streak. In
general, his religious interests weren’t tied to codes of earthly conduct. Religion
moved him on a more primitive level. Whether roaring out hymns at revival
meetings or sitting alone in Saint George’s, savoring organ music in
semidarkness, he seemed mesmerized by ritual and lapsed into reveries of mystic
depth.
Approaching Scripture with the literalism of a fundamentalist, Pierpont was as
credulous as a child. In 1882, he visited Palestine. Deeply moved, he wrote
Fanny about the sensations he experienced before the doorway of Christ’s
sepulcher: “There is the slab on which He was laid. Impelled by an impulse
impossible to resist you fall on your knees before that shrine.”12 In later years,
he told his librarian, Belle da Costa Greene, that he believed every word in the
Bible, including the account of Jonah and the whale. Once traveling down the
Nile with Bishop William Lawrence, he pointed out the precise spot where
Moses was plucked from the bulrushes and insisted it happened exactly as set
forth in the Bible. In view of this credulity, it is not surprising that Pierpont was
fascinated by the occult. For years, he commissioned the astrologer Evangeline
Adams to read his horoscope, asking her to study his stars on everything from
politics to the stock market. When his son, lack, was born, the infant’s horoscope
showed a cardinal cross, associated with depressions—an apt prophecy for the
Morgan who steered the bank through 1929.
In 1883, the thirty-three-year-old Rev. William S. Rainsford took over as Saint
George’s rector. He was a handsome young Irishman with a Cambridge
education. Having bankrolled the church’s activity, Pierpont had a hand in his
appointment. As a social reformer and fiery exponent of the “social gospel,”
Rainsford told Morgan he would take the job only if the church were democratic
and open to the poor. “Done,” said Morgan, who agreed to make up the church’s
deficits.13 And Rainsford indeed welcomed the poor into Saint George’s nowfree pews. Eventually the two men became so close that they had breakfast
together every Monday morning at 219 Madison Avenue, and Morgan built
several new church buildings.
Dr. Rainsford later ran into trouble when he tried to enlarge and democratize
the vestry, which met in Morgan’s “black library.” This went against the grain of
Pierpont’s arm’s-length philanthropy, and he bluntly retorted: “I do not want the
vestry democratized. I want it to remain a body of gentlemen whom I can ask to
meet me in my study—gentlemen who would feel at home and who could make
up deficits out of their pockets.”14 He sent a letter to Rainsford, resigning his
post as senior warden; the young rector stubbornly refused to accept it. For
several weeks, the two men continued their Monday breakfasts, both eating in
silence. During these meals, Pierpont may have recalled the rich men who
hounded his reformer grandfather, the Reverend Pierpont. After several weeks of
this standoff, Morgan invited Rainsford to see him set sail for Europe. Alone
with Rainsford in his stateroom, Pierpont threw his arms around him and
exclaimed, “Rainsford, pray for me, pray for me.”15 The feud ended with this
melodramatic display of contrition.
Rainsford has left interesting impressions of Pierpont’s religious faith: “His
beliefs were to him precious heirlooms. He bowed before them as the Russian
bows to the ’ikon’ before he salutes the master of the house.”16 He saw that for
Pierpont the Church wasn’t an active, reforming spirit, but a repository of
ancient beauty, powerful because it was archaic and unchanging. Rainsford also
credited Pierpont with intense loyalty and forthright honesty: “When he said a
thing, and looked full at you as he said it, to doubt him was impossible.”17 It was
the same look that transfixed two generations of railroad presidents and
industrial moguls.
the business life of Pierpont Morgan was bound up with the
railroads, Pierpont felt more keenly the allure of the sea. At a time when private
railroad cars were common showpieces among tycoons, Pierpont never owned
one and took private cars, as needed, from the railroads he directed. By midlife,
the sea was his best remedy for depression, the place where he escaped from the
perpetual strain of the office and was liberated from care. When a yacht-owning
fad swept fashionable New York in the 1880s, he needed little inducement to
participate. In 1882, he bought the first of a series of enormous yachts, named
Corsair, and joined the New York Yacht Club. This black-hulled steam yacht—
165 feet long and the second largest in the club’s fleet—marked a new Morgan
magnificence.
It was probably no coincidence that Pierpont bought the Corsair soon after it
first became apparent that his marriage was disintegrating. The boat was more
than a showy bauble. It gave him a social setting beyond Fanny and the children
and would later figure in many stories of secret revelry. It permitted an outlaw
life beyond the stuffy Victorian bounds of his early married days. He created a
group of friends known as the Corsair Club, which provided the camouflage
ALTHOUGH
needed to smuggle women on board. The ship was also a second home,
particularly when Fanny and the children retreated up the Hudson to Cragston
for the summer. Often, Pierpont would dine on the ship and spend the night as it
lay at anchor off Manhattan.
Purchase of the Corsair coincided with a new phase in Pierpont’s career, in
which he became an arbiter as well as a financier of railroads. The boat was
useful as a meeting place to settle disputes, a secret clubhouse beyond spying
eyes. Pierpont had an actor’s talent for creating dramatic backdrops for his
exploits, and the Corsair allowed his business life to take on an aura of operatic
flamboyance. This was never truer than in the 1885 dispute between the
Pennsylvania Railroad and the New York Central over a railroad called the West
Shore.
Pierpont’s involvement had a personal dimension. One day in 1881, he saw a
peddler leading a pair of donkeys up Broad Street; delighted by their
resemblance to small donkeys he had seen in Egypt, he sent a clerk out to buy
them. Christened Beelzebub and Apollyon, they were favorites of the Morgan
children at Cragston. The following year, his children felt menaced by Irish
ruffians building a new railroad below his house on the Hudson’s west bank, and
Pierpont forbade them to ride unaccompanied by an adult. At the same time,
blasts of explosives from the construction of this new West Shore road rattled
Cragston’s windows, invading the tranquil Morgan hideaway.
The West Shore was that railroad bane of the period—the blackmail line.
Extortion artists would lay down parallel lines just to be bought out by an
established road. Since railroads were natural monopolies and couldn’t survive
much direct competition, they could be easily threatened by small competitors.
The West Shore ran up the west side of the Hudson, parallel to the New York
Central on the opposite bank, then tracked the Central to Buffalo. It was widely
believed the powerful Pennsylvania Railroad stood behind the West Shore. So in
retaliation, the New York Central broke ground on a South Pennsylvania road to
compete with the Pennsylvania from Philadelphia to Pittsburgh.
A fierce rate war between the West Shore and the New York Central
hammered down stock and bond prices for both companies, confirming
Pierpont’s growing hatred of competition. It came at a precarious time for
railroad bankers. During a stock market plunge in 1883, there was a near-panic
in American rail stocks in London, producing a rising clamor for a financial czar
who could arbitrarily settle such disputes. Cyrus Field cabled Junius, “Many of
our business men seem to have lost their heads. What we want is some coolheaded strong man to lead.”18 As fiscal agent for the road, Junius watched with
alarm as New York Central stock fell below par for the first time; its dividend
was halved. In early 1885, Pierpont went to London to consult with Junius and
fumed over the “absurd struggle for preeminence” plunging America’s railroads
into internecine warfare.19 By the spring of 1885, the West Shore had gone into
the hands of a receiver, while the hard-pressed New York Central deferred
critical maintenance.
It seems anomalous that America’s most famous financier was a sworn foe of
free markets. Yet it followed logically from the anarchy of late nineteenthcentury railroads, with their rate wars, blackmail, lines, and lack of standardized
gauges. To destroy competing lines, railroads could simply refuse to transfer
freight to roads that abutted theirs. From an engineering standpoint, Pierpont
knew little about railroads. What he did know was that they required steady
revenues to cover their fixed interest costs on bonds marketed in New York and
London. In the mid-1880s, freight rates were declining sharply under the
pressure of savage price-cutting. Pierpont decided that “the principal thing was
to secure a harmony between the Pennsylvania and New York Central.”20
On the sultry morning of July 20, 1885, with an impresario’s flair, Pierpont
staged a reconciliation between America’s two largest railroads. After picking up
the New York Central’s president, Chauncey Depew, he crossed to a New Jersey
pier and took aboard George H. Roberts, president, and Frank Thomson, vicepresident, of the Pennsylvania Railroad. Pierpont always denied his yacht was
chosen for the sake of secrecy. “I do not know that that was a part of the
consideration,” he later testified. “It might have been.”21
Before bringing both parties on board, he worked out the broad outlines of a
truce. While the Corsair sailed up and down the Hudson, he sat under the rear
awning, flanked by the railroad chiefs and smoking his nightmarishly huge black
cigar. He stressed the displeasure of European investors with American railroads,
but mostly let the railway men debate among themselves. In general, he used
two negotiating ploys. He would create a “no-exit” situation and add to it threats
that his rivals faced a deadline—a way of building tension and softening up the
parties. Also, by saying little, he underscored his position as honest broker and
permitted the antagonists to vent their anger. Pierpont was, by nature, a laconic
man. He had no gift for sustained analysis; his genius was in the brief, sudden
brainstorm. As one lawyer said of him, “Morgan has one chief mental asset—a
tremendous five minutes’ concentration of thought.”22 By the time the railroad
presidents were deposited on their respective shores at seven o’clock that
evening, they had agreed to buy out each other’s lines and desist from their
mutually destructive warfare. Years later, the tunnels and embankments from the
abandoned South Pennsylvania line would be incorporated into the Pennsylvania
Turnpike. And as the New York Central’s business expanded, it enlisted the West
Shore tracks for a second line along the Hudson River.
The newspapers lionized the author of this Great Railroad Treaty of 1885, also
known as the Corsair Compact.23 Pierpont had pulled off such a masterly feat
that even Junius—so stingy with compliments—told Fanny, “Pierpont handled
the West Shore affair better than I could have done it myself.”24 Pierpont was
forty-eight when Junius voiced this unprecedented compliment. Once again,
Pierpont had performed the kind of task of industrial arbitration that would later
be left to courts and public commissions. In the rough-and-tumble of the
Baronial Age, competition was naked and brutal, and businessmen lacked trade
groups in which they could discuss common problems. Bankers could intervene
as neutral parties, particularly where, as with Drexel, Morgan, they had
performed work for both companies. Over the years, Pierpont would employ the
sharpest lawyers, yet his preferred style was more British—informal deals,
handshakes over brandy and cigars, cordial clubroom chats among bankers as
they stood in frock coats and stiff collars. The Morgans were never litigious.
During one railroad battle, Junius wrote Pierpont, “I hope you will not be
tempted into litigation. Life is too short for that.”25
Bloodletting among railroads intensified in the 1880s. Several rail roads
skirted bankruptcy. In 1886, Drexel, Morgan reorganized the big Philadelphia
and Reading Railroad. This involved issuing new bonds with lower interest rates
and assessing shareholders to lighten the burden on the line. The revived railroad
was then taken over by a Morgan antagonist named A. Archibald McLeod, who
later declared, “I would rather run a peanut-stand than be dictated to by J. P.
Morgan.”26 He freely defied Morgan and invaded the territory of his other
railroads. The experience would convince Pierpont not to release his grip on
reorganized companies.
The basic weakness with America’s railroad system was overbuilding, which
forced the roads into endless rounds of rate cuts and wage cuts to service debt.
At the same time, the massive power of their largest consumers—notably
Rockefeller in oil and Carnegie in steel—forced them to grant preferential
rebates to big shippers, enraging small western farmers and businessmen and
stimulating calls for government regulation. For Pierpont, the leading symbol of
railway monopoly, pure competition was never an option. Years later, he said,
“The American public seems to be unwilling to admit . . . that it has a choice
between regulated legal agreements and unregulated extralegal agreements. We
should have cast away more than 50 years ago the impossible doctrine of
protection of the public by railway competition.”27 As we shall see repeatedly,
the House of Morgan always favored government planning over private
competition, but private planning over either.
In 1887, Congress passed the Interstate Commerce Act, the first regulatory
commission, which enshrined competition as its guiding principle and eliminated
the controversial rebates. Supporters of the act formed a diverse constituency,
ranging from small shippers to the railroads themselves; the latter accepted the
inevitability of regulation and hoped that in the proper form it might provide
some sorely needed stability. But within six months of the creation of the
Interstate Commerce Commission, the rebates reappeared. Hence, in 1888 the
railroad chieftains decided to graft their own form of self-regulation on the ICC
framework under the aegis of Pierpont Morgan.
That December, newspaper readers were regaled with accounts of mysterious
doings at Morgan’s Murray Hill home. As reporters staked out the house, they
saw a procession of western railroad presidents and bankers disappear inside.
Those arriving included Charles Francis Adams of the Union Pacific and a
ghastly sick Jay Gould representing the Missouri Pacific. The Morgan house was
under siege: reporters kept ringing the doorbell and fixed opera glasses on the
windows. Inside, at the head of his library table, Pierpont opened the discussion
with these words: “The purpose of this meeting is to cause the members of this
association to no longer take the law into their own hands when they suspect
they have been wronged, as has been too much the practice heretofore. . . . This
is not elsewhere customary in civilized communities, and no good reason exists
why such a practice should continue among railroads.”28 Clearly, Pierpont’s
European experience formed his frame of reference.
Backed by representatives of Barings and Brown Brothers, Pierpont offered
the railroad presidents a deal: if they refrained from rate-cutting and cutthroat
competition, the financiers would stop underwriting competing railways. It was a
clever move, for while Wall Street accused the railroads of irresponsible
behavior, the railroads blamed Wall Street for floating too many securities and
creating the overexpansion that led to price wars. Morgan himself was accused
of sponsoring overcapitalized lines that couldn’t weather recessions because of
their heavy debt load. The December 1888 meetings produced a gentleman’s
agreement to maintain rates for sixty days; then the group would reassemble at
Morgan’s house.
A similar gathering took place at Pierpont’s “black library” in January 1889.
This one yielded plans for a huge centralized group to regulate the entire rail
system—the Interstate Commerce Railway Association. This behemoth would
set rates, arbitrate disputes, and mete out fines to offending railroads. Pierpont
was to head the cartel. The New York Sun called the new group “nothing short of
a revolution in railroad methods.”29 But the new group soon fell apart under the
pressure of western rate wars.
Pierpont’s last stab at establishing railroad stability took place at a meeting on
December 15, 1890. Besides the earlier luminaries, this gathering drew
Stuyvesant Fish of the Illinois Central, fames J. Hill of the Great Northern, and
T. F. Oakes of the Northern Pacific. Pierpont presented a plan for a Western
Traffic Association, which would include one director from each railroad and
would set uniform rates; any railroad that cheated would be discharged. He was
mightily pleased with his plan. In a rare burst of public candor, he exulted to a
reporter, “Think of it—all the competing traffic of the roads west of Chicago and
Saint Louis placed in the control of about 30 men!”30 The statement is
splendidly innocent, yet perilously blind. Pierpont believed so implicitly in his
own fairness and good judgment that he saw no harm in a large section of
America’s economy coming under his personal dominion. The New York Herald
blared, “RAILROAD KINGS FORM A GIGANTIC TRUST.”31 Before too long, this plan,
too, would crumble.
In the last analysis, the gentleman’s agreements suffered the historic fate of
cartels. They couldn’t control small outside competitors, who cut rates,
outflanked larger rivals, and won new business. With surreptitious cheating and
lack of discipline, deals soon collapsed. Even the now-immense authority of
Pierpont Morgan couldn’t solve the structural problems caused by too many
railroads chasing too few passengers and owing too much money. As scores of
railroads went bankrupt during the 1893 panic, Pierpont would reorganize many
of them and use controversial new techniques to bring about order.
This phase of Pierpont’s life shows that his real vice was not money but
power. This was not power of a pathological sort, not power to bully men and
bask in glory—though there was some of that—but power to take what he saw as
a topsy-turvy financial world and set it right. Among robber barons, he was
unique in suffering an excess of morality. He believed that he could master the
problems of his era at a time when others were confused by the sheer dynamism
and speed of economic change.
As this new power accrued to the House of Morgan, making it the premier
American bank, excruciating responsibility fell on Pierpont’s shoulders. Yet his
office staff was slim, with only eighty employees. Pierpont didn’t even have a
permanent secretary. Junius continued to warn his son against exhausting
immersion in business. At the same time, his secretive merchant-banker’s
sensibility was shocked when Pierpont appointed a clerk to open incoming mail.
In the late 1880s, in a final volley of advice, Junius wrote that “no body,
however strong & well he may be, can stand such strain upon his physical and
mental powers as you have had for the last 2 years without paying sooner or later
the penalty unless he gives them a real rest & gives it to them in season.”32 Yet
Junius never saw how much his own unbending style and unrealistically high
standards had contributed to Pierpont’s slavish dedication to work.
the 1880s, as his health was fading, Junius Morgan slowly eased out of
business. The Iron Duke of the Morgan saga had become the most influential
American banker in London, a peer of Barings and Rothschilds, his firm
participating in an international smorgasbord of loans—for the Egyptian national
bank, Russian railways, Brazilian provincial governments, and Argentinean
public works. Whatever his health problems, he gave an impression of rock-solid
durability; the London Times declared him “a hale and vigorous man, for his
years.”33
In 1884, Junius’s wife, Juliet, died at the age of sixty-eight. Surrounded by her
favorite collection of china dogs, she had been, as the Morgan family tactfully
phrased it, “confused” in her later years and confined to an upstairs room much
of the time. Thus, she had been unable to share in her husband’s life. After her
death, Junius’s solitude was relieved by twice-weekly letters from Pierpont and
visits from his grandchildren. J. P. Morgan, Jr., whom the family called Jack,
worshiped his grandfather and particularly liked the English formality at 13
Princes Gate, including the way the servants treated him as “heir apparent.”34
Junius was as attached as ever to Pierpont. After a visit from him in the south of
France, he wrote, “Pierpont & family left today—House very lonely—miss them
dreadfully.”35
These visits were Junius’s main pleasure at the end. A photograph of him
taken in 1890 shows the firm mouth and steady gaze of earlier years. His hair
was snow-white, his eyebrows white and tufty, and the top of his head was bald.
He spent winters at the Villa Henriette in Monte Carlo, which had a beautiful
view of the Mediterranean. Leading an orderly, bourgeois life, he dined with
friends and took afternoon carriage drives. During one excursion on the
afternoon of April 3, 1890, the horses were startled by an onrushing train. Junius
jumped up to see whether his coachman could master the team. At that instant,
the carriage ran against a heap of stones and flung him violently against a wall,
breaking his wrist and causing a brain concussion. For five days, he lay
unconscious. Then the flow of maxims ceased forever. Perhaps it was
appropriate that Junius’s death was dealt by one stunning blow in his seventyseventh year rather than by a dribbling away of strength,-in its obituary notice,
BY
the London Times remarked that he had hardly been ill in his life.36 Certainly
there was mysterious symbolism in the fact that a train’s sudden roar, upsetting a
pastoral landscape, had killed one of London’s foremost railroad bankers.
Junius was buried in the Cedar Hill Cemetery in Hartford. As he had for
Peabody, Pierpont devised a funeral suitable for an illustrious warrior-hero.
Hartford shopkeepers along the funeral route closed their businesses for the
occasion, while flags flew at half-mast over the state capitol. Pierpont’s
inscription to Junius for the Morgan Memorial Building at the Wadsworth
Atheneum said much about their common identification with London’s
merchant-banking tradition: “In loving memory of Junius Spencer Morgan, a
native of Massachusetts, a merchant of Hartford . . . afterwards a merchant of
London.”37
Did Pierpont resent his father’s domination? Or was his admiration as
unmixed as he claimed? Whatever anger or ambivalence he felt was buried
beneath gigantic monuments. He honored Junius like Hamlet’ mourning the dead
king. For twelve years, he gathered up land around Hartford’s Wadsworth
Atheneum in order to create the Morgan Memorial, a $1.4-million pink marble
building in English Renaissance style that doubled the museum’s size. Years
later—glancing impatiently at his pocket watch all the while—he surveyed
blueprints and rapidly picked out three new buildings for the Harvard Medical
School, again to certify a son’s love. And upon the red damask wall of the West
Room of his own library, Junius’s portrait would hold pride of place, ringed by
Umbrian Madonnas and infant Saviors—the powerful patriarch surrounded by
loving children and ethereal females. After a small fire at his Madison Avenue
townhouse, Pierpont was asked which treasure he would have rescued first. “My
father’s portrait,” he said without hesitation.
An American magazine had recently listed Pierpont and Junius as among
America’s richest men. Now Pierpont inherited an estate of $12.4 million, and
his personal fortune doubled overnight. Ten million dollars would stay in the
bank. He was bequeathed control of a banking empire and assumed his father’s
position in the City. Like his father, he stood astride that flow of capital from
Britain to America and would profit as it reversed direction in the new century.
After Junius’s death, some shackle was lifted from Pierpont’s spirit. A new
grandiosity flowered and he self-consciously became J. Pierpont Morgan, mogul,
pirate, patron of the arts. Before Junius’s death, Pierpont’s collections were
modest; in 1888, he had bought his first literary manuscript, a Thackeray. Now
he embarked on a buying spree that would eventually produce the world’s largest
art collection in private hands. To trumpet the new J. P. Morgan, he also enlisted
his friend J. Frederic Tams to design Corsair II. Tams was given blank Drexel,
Morgan checks and told to forget about expense; the only restriction was that the
boat be able to turn around in the Hudson River near Cragston. A dark, sleek
ship with a glamorous black hull and yellow smokestack, this new Corsair
measured over two hundred and forty-one feet in length and aggressively laid
claim to the title of the largest pleasure vessel afloat. In time, the mere
appearance of the Corsair II in foreign harbors would alarm the populace, as if
warning of an impending invasion of American capital.
men in the Morgan family might have been far happier had not each of
three consecutive generations produced only one son to survive to adulthood. In
merchant-banking families, the whole weight of the dynasty was at once placed
on the male infants. Unlike publicly traded companies, which have a corporate
life of their own, private merchant-bank partnerships often relied upon the name,
capital, and reputation of a single family. If the male heir(s) refused to go into
the family business, it might have to be wound up. Thus, Morgan expectations
were lodged first by Junius in Pierpont, then by Pierpont in Jack. In both cases,
business pressures would tremendously intensify the typical father-son tensions.
From the outset, Pierpont’s relationship with Jack differed from his own with
Junius. If Pierpont suffered from Junius’s sometimes smothering attention, Jack
suffered the curse of neglect. He craved the love of a father who seemed too
remote and too self-absorbed to attend to his boyish needs. Between Jack and his
father there would always be some distance, some nameless discomfort, that was
very different from the intense, manly mutual fascination between Junius and
Pierpont. Both Pierpont and Jack were shy and clumsy and steeped in New
England formality. It was difficult for the delicate, insecure Jack to cope with the
great flashing, roaring engine of a famous father.
Unlike Pierpont, who had been a wild, headstrong boy requiring a firm hand,
Jack needed a father to buck up his faltering courage—which Pierpont didn’t do.
Jack was gentle and sedentary, lacking fire. He attended Saint Paul’s School in
Concord, New Hampshire, where rich adolescent boys were exposed to Spartan
Yankee routines. They had to write weekly letters home but couldn’t receive
presents and had to seek pocket money from the rector. Where Pierpont wrote
boyhood essays in praise of Napoléon, Jack seemed more protective of the weak.
Explaining why one teacher was his favorite, he confessed: “I suppose that it is
partly because I feel sorrier for him than any of the others—the boys do plague
him so.”38 In 1880, at thirteen, he cried upon reading Dom-bey and Son,
Dickens’s novel about a stern magnate father and his sensitive son. Like his own
THE
father, Jack suffered migraine headaches that lasted for days. Big, awkward, and
docile, Jack liked well-bred boys, not ruffians, and already sounded middle-aged
at twelve, telling Fanny he refrained from marbles because “it doesn’t pay for
the wear and tear and chapping of the knuckles.”39
Jack lacked the nerve to contest his terrifying, distant father. Where Pierpont
had the fortitude to confront Junius, Jack silently hoped for approval and leaned
on his mother for emotional support. He found his father a man of violent and
mercurial moods. His anxiety grew especially acute about money, a subject
invested with many family taboos. Like the young Pierpont, Jack kept strict
accounts of his expenses. We find him recording ten cents for a library fine at
school and charging expenses against his “Christmas money” or “grandpa
money.”40 Whenever the subjects of Pierpont and money coincided, Jack
trembled: “You see I don’t mean to do anything about money that Papa wouldn’t
like,” he told his mother. “Papa hates so to have me come to him about money
matters that I did not mean in any way to hint that he ought to pay the bill.”41
Such sentiments abound in his boyhood letters.
Jack’s letters to his mother form the most complete record of Morgan family
life; unfortunately, no account from Fanny’s side remains. It is clear, however,
that Jack was passionately attached to his mother. Sensitive to each other’s
melancholy, they shared the great enigma of J. Pierpont Morgan and consoled
each other for forty years. Later on, we shall see Jack Morgan as a bitter old
man, yet here he was as an ardent boy, bursting with affection, telling his
mother: “Dear, I love you as you know and just now I am full of comfort
thinking I am going to see you in less than a week.”42 Even as a teenager, he felt
protective toward Fanny and sometimes sounded more like parent than child. As
Fanny became depressed and bedridden—there are many references to her
invalidism in Jack’s letters—he tried to cheer her up. In 1889, he wrote, “As to
your blues,--I can only say, what every one else does, do take care enough not to
overtire yourself, and watch against them all you know how.”43 As a teenager, he
was slightly puzzled when a friend’s mother described Fanny as “calm cold
unenthusiastic.”44 Yet the episode suggests that Fanny may have been aloof in
the outside world and showed her emotions only in private.
While Pierpont had a smattering of university education at Göttingen, Jack
was the first Morgan to obtain a college degree, graduating from Harvard in
1889. He had a broad, smooth face, with dark hair flattened on top, and a
mustache. His Harvard years, which coincided with his father’s gentleman’s
agreements, were free of rebellion. While Pierpont knocked heads with railroad
satraps in New York, Jack loafed, smoked pipes, and took a gentleman’s C,
spending his senior year studying the properties of seaweed. It was symptomatic
of Jack’s humility and his insecurity that when he made an exciting discovery in
his laboratory, he chalked it off it to luck.
Like his mother, Jack enjoyed literature, but seemed unsettled by dark
worldviews. Proper and squeamish, he was disturbed by Faust’s tragic ending
and found La dame aux camélias depressing. There would be no tubercular
Mimi or tear-stained adventures in Jack’s young life. Sailing to Europe in 1887,
he wrote, “There is only one girl on board who could be called a belle and I have
kept very clear of her because she struck me as being very common.”45 He flirted
with no dangerous doctrines and was already impatient with meddlesome people
who stirred up trouble. “I don’t know why so many people . . . seem to look
upon business as if it were the general sewer in which all ambition and
intelligence disappear. I must confess I don’t see any harm myself in making a
little money, provided that it can be done honestly and reasonably.”46 He was
also quite religious. Where other young men hotly debated the justice of the
social order, Jack worried about whether gambling should be openly denounced
from the pulpit.
Jack has left a melancholy record of the emotional chasm that separated him
from his father. He told one satiric story that also said much about Pierpont’s
self-absorption. He had invited a Harvard classmate to visit him at Cragston, and
the young man rode up on the Corsair with Pierpont. After introductions,
Pierpont promptly buried himself in the newspaper. When they landed, he said to
Jack about the classmate, “That is one of the nicest young fellows I’ve met.”47
Pierpont apparently found Jack soft and rather passive, lacking the sort of
gumption he had as a young man. In 1884 and 1885, he arranged for his son to
take a hunting trip in the Rockies with William Rainsford, the rector of Saint
George’s, who was a great sportsman. Jack shot a bighorn sheep and slept in a
snowbound cabin—manly pursuits Pierpont hoped would toughen the young
man up. Meanwhile, Jack’s intimate life remained confined to his mother.
In 1889, Jack graduated from Harvard and met Jane Norton Grew, daughter of
Boston banker and mill owner Henry Sturgis Grew. Descended from several
prominent families, including the Sturgises and the Wigglesworths, Jessie, as
Jane was called, had a proper Bostonian pedigree. Yet before approving the
match, the Morgans and the Grews circled around each other and sniffed for a
while. Jack passed along Jessie’s genealogy to the snobbish Pierpont and kept
requesting a chance to discuss their possible marriage. Finally Pierpont
consented to talk with his son during his next trip to Boston. In a letter both
angry and wistful, Jack told Fanny what happened:
On Saturday Papa telegraphed me he should be in Boston a few hours
and hoped to see me. He was to arrive at 6:40 and go back at midnight, with
a party of twelve for a Corsair dinner. I expected to be nearly an hour with
him, instead of which his train was delayed and instead of seeing him I
waited under a railroad bridge in the rain for an hour, and had the delightful
opportunity of driving from the Station to the Club with him in the same
carriage with Mr. Bowdoin [Pierpont’s partner] and Mr. Depew [then
president of the New York Central]. As he had not sent me on a single one
of your telegrams, and had not told me anything about Rainsford’s plans or
even if he himself was certain to sail on Wednesday the visit was somewhat
unsatisfactory. There certainly are some drawbacks to belonging to a busy
man no matter how fine he may be as I believe you have sometimes found
out.48
Most revealing is how the letter ends—with Jack portraying himself and
Fanny as common victims of Pierpont. A month later, anxious and trembling,
Jack blurted out the facts of the situation with Jessie. Pierpont responded that in
the spring he and Fanny would consider the matter. Frightened of his father, Jack
was always relieved and grateful when he received sympathetic attention. After a
subsequent meeting, he told his mother, “It would be hard for me to exaggerate
my thankfulness for the way in which Papa received my confidences, and the
satisfaction I feel in having spoken to him. It has made me less blue than I have
been for months.”49 On December 11, 1890, Jack and Jessie were wed in
Boston’s Arlington Street Church, a marriage that made the front page of the
New York Times.
The oral history that has come down through the Morgan family contends that
Jack wanted to be a doctor and became a banker only when his father made it a
matter of family honor.50 In 1892, at the age of twenty-five, Jack became a
partner in the Morgan banks in New York, Philadelphia, and Paris. During a
twenty-year business association, Jack would remain a close observer of his
father, charting his manic-depressive moods and giving him more generous
sympathy than he received in return, although the relationship would become
somewhat more equal toward the end of Pierpont’s life.
Jack entered the Morgan empire at a critical time. In June 1893, Tony Drexel
died while visiting the Austro-Hungarian health resort of Karlsbad, leaving an
estate said to be worth between $25 and $30 million. While giving Pierpont
managerial control in New York, the Drexel family had retained control of
Drexel and Company in Philadelphia and Drexel, Harjes in Paris. In October
1893, Anthony Drexel, Jr., decided to retire and devote himself to society
pleasures, thus enabling Pierpont to strengthen his hold over the interlocking
partnerships in New York, Philadelphia, Paris, and London. At a dinner meeting
at the Metropolitan Club—the sole time in Morgan history that the New York
and Philadelphia partners sat in one room—he announced a new plan for
centralized control.
In the 1895 reorganization, Drexel, Morgan was rechristened J. P. Morgan and
Company, while the Paris office became Morgan, Harjes. The Philadelphia
house remained Drexel and Company, but the Drexel family passed from the
scene, and Pierpont tapped Edward T. Stotesbury, son of a Philadelphia sugar
refiner, to head the Philadelphia office. J. S. Morgan and Company in London
would soon undergo a major reorganization of personnel. Among the four
Morgan partnerships, the only common denominator would be Pierpont’s
position as all-powerful senior partner; his associates, in contrast, might be
partners in some, but not all the firms. Pierpont would take 35 percent of the
profits of the combined houses. Power had now passed from London to New
York, which would remain the command post of the Morgan empire. Despite its
multinational veneer, the Morgan empire would be American-based, with
partners at 23 Wall wielding disproportionate power. Where Junius had
dispatched Pierpont to New York as the lesser financial center, so Pierpont
would dispatch Jack to London, soon to be eclipsed by New York. On the eve of
an unprecedented industrial boom in America, which would see the creation of
vast trusts, the House of Morgan had opportunely shifted its center of gravity
westward across the Atlantic.
Morgan’s thunderous presence at 23 Wall Street could be observed
by visitors as soon as they entered his glass-enclosed, wood-paneled offices.
(The concept was copied from Junius’s office.) Seated in a swivel chair before a
rolltop desk on the Broad Street side, a coal fire behind him in winter, he would
rise, stroll over, and question his partners as he needed to. Lincoln Steffens
recalled how he sat in a back room with glass sides and the door open. This
sense of access was illusory, however, for his imperious stare could reduce
interlopers to jelly. He unnerved those who overstayed a visit by simply writing
and not looking up. Steffens recalled that “his partners did not go near him
unless he sent for them; and then they looked alarmed and darted in like office
boys.”51 Even his partners called him Mr. Morgan, or the Senior. So there he sat,
displayed like a carnival waxwork, the man Bernard Baruch termed “the greatest
financial genius this country has ever known.”52 He invited intimacy but then
PIERPONT
rebuffed it; his aura was so fearsome that crowds parted before him on the
pavement. Once, when an Episcopal bishop visited Cragston, Pierpont was able
to flag down a West Shore train in the middle of the night so the prelate could
make his way back to Manhattan.
There are many stories of Pierpont’s brusque impatience and his economy of
self-expression. He had a short attention span and sometimes worked only from
eleven o’clock to three or four in the afternoon, pausing for a sandwich, pie, and
coffee at his desk. After saving one merchant’s business, he interrupted the
man’s grateful blubbering to say, “No, it is a busy day. There’s no time for that.
Good morning.”53 Few were privy to his thoughts, and he often had his own
unstated agenda. Journalist Clarence W. Barron tells the story of a young Boston
financier, F. H. Prince, who went to Pierpont for investment advice. Prince
confessed, “I shook Mr. Morgan’s hand and thanked him warmly for the great
interest he was taking in me as a young man and said I should never forget his
advice. I knew at this time that he was doing everything he could to ruin me.”54
After Junius’s death, Pierpont needed to loosen his autocratic grip, as the sheer
volume of work outgrew his need for domination. He had long bewailed his
inability to delegate authority—“It is my nature and I cannot help it”—and held
no formal meeting of his partners until after the 1907 panic.55 Despite the scope
of his vision, Pierpont was extremely attentive to details and took pride in the
knowledge that he could perform any job in the bank: “I can sit down at any
clerk’s desk, take up his work where he left it and go on with it. . . . I don’t like
being at any man’s mercy.”56 He never entirely renounced the founder’s itch to
know the most minute details of the business. He examined the cash balance
daily, boasted he could pay off all debts in two hours, had a deadeye for fake
figures in scanning a ledger, and personally audited the books each New Year’s
Day. When he found an error, the effect could be memorable for the responsible
employee. “He was a perfectly huge man and he had a voice like a bull,” said
Leonhard A. Keyes, then an office boy who wound the gold Tiffany clock on his
desk.57
Pierpont Morgan’s power flourished during the steep industrial recession that
began in 1893. Over fifteen thousand commercial firms failed in a contraction
that led to class warfare and quasi-revolutionary strife in many parts of the
United States. The bloody rout of steel workers in the Homestead strike of 1892
gave way to the government’s merciless crushing of the 1894 Pullman strike.
Over six hundred banks failed during this period, and cash grew so scarce as a
result of hoarding that brokers traded it on Wall Street curbs. Every company
that failed and was reorganized by a bank ended up the bank’s captive client. In
1892, General Electric had been formed through a consolidation of the Edison
General Electric Company and Thomson-Houston Electric. When the new
company failed the next year, Pierpont rescued it and thus insured GE’s future
loyalty to the House of Morgan.
Oppressed by debt and overbuilding, more than a third of the country’s
railway trackage fell into receivership, and English investors exhorted Pierpont
to bring order to the industry. Thwarted by gentleman’s agreements, Pierpont
now tried another approach to forming railway cartels: he would reorganize
bankrupt roads and transfer control to himself. Then he wouldn’t be at the whim
of government or feuding railway chiefs. In reorganizing railways, he ascended
to a new plateau of power, beyond what any other private businessman had yet
achieved. The lengthy catalogue of railroads that fell under his control included
the Erie, Chesapeake and Ohio, Philadelphia and Reading, Santa Fe, Northern
Pacific, Great Northern, New York Central, Lehigh Valley, Jersey Central, and
the Southern Railway. Virtually every bankrupt road east of the Mississippi
eventually passed through such reorganization, or morganization, as it was
called. Some thirty-three thousand miles of railroad—one-sixth of the country’s
trackage—were morganized. The companies’ combined revenues approached an
amount equal to half of the U.S. government’s annual receipts.
It is hard to exaggerate the power that Pierpont accrued. Railroads then
comprised 60 percent of all issues on the New York Stock Exchange. Utility and
industrial stocks were rated as too speculative for insurance companies and
savings institutions, putting railroads in a blue-chip category by themselves.
Also, by issuing free passes to politicians, the railroads exercised a giant,
corrupting influence on state legislatures. As his bank became a gigantic mill for
bankrupt railroads, Pierpont routinely picked up $l-million fees.
With morganization, fixed railway costs were slimmed, and creditors were
forced to swap their bonds for ones with lower interest rates, enabling roads to
resume debt service. Pierpont would also put a lien on the railroads’ vast land
and mineral holdings, so that money couldn’t be diverted to other enterprises. A
court case nearly a hundred years later would show how binding these
arrangements were. In 1987, the Burlington Northern Railroad tried to free itself
from covenants Pierpont had imposed on the bonds of its predecessor, the
Northern Pacific, which fell into receivership in 1893. He had put a lien on 1.9
million acres of land and 2.4 million acres of mineral rights, stipulating that all
proceeds should go to improving the road. Analysts estimated that coal, oil, gas,
and other minerals on the affected lands were worth billions of dollars. From
beyond the grave, Pierpont stood up foursquare for creditors.
As a further guarantee that the roads would never again squander money, a
majority of their stock was transferred to “voting trusts.” These were usually a
euphemism for Pierpont and three or four of his cronies, who ran the railroads,
typically for a five-year period. It was an extension of Pierpont’s old trick of
trading money for power, and it usurped commercial power on a scale
unprecedented in banking history. No longer would the banker just finance and
advise his clients; now he would intervene directly in running the companies.
The distinction between finance and industry was eroding dangerously.
Why would tens of thousands of shareholders yield their shares to this Wall
Street pope in exchange for so-called trust certificates? The answer lies in a
peculiarity of nineteenth-century finance: when companies lost money,
shareholders in bankrupted companies could be dunned for assessments. So
investors rushed to give up their shares and avoid the threatened penalties.
Pierpont was now an altogether new species of robber baron—not nakedly
voracious, not a Rockefeller snuffing out troublesome competitors, but a gruff,
well-tailored banker with a legal, if highly controversial, system.
Within the bank, morganization was viewed benignly as the exercise of
fiduciary responsibility to shareholders. Pierpont didn’t seem to operate by any
grand scheme—he was too instinctive for that. A later Morgan partner, Tom
Lamont, remarked that he “never knew of a man who addressed himself more
exclusively than Mr. Morgan to the ad hoc situation and the ad hoc job that lay
before him. All this talk about his devising or building up systems is perfect
tosh.”58 Pierpont didn’t spin webs or plot paths to power. Rather, he had a
messianic faith in his ability to reorder businesses. If he could tidy up America
better than anyone else, so be it. He took the technique of the voting trust and
endlessly multiplied his power. As Sereno S. Pratt, an editor of the Wall Street
Journal, later said of him, “His power is not to be found in the number of his
own millions, but in the billions of which he was the trustee.”59
If there was nothing devious about the voting trusts, they created a frightening
concentration of Wall Street power. Before the morganization period, more than
two-thirds of American railroads had offices outside New York; afterward, most
were headquartered there. By 1900, the nation’s railroads were consolidated into
six huge systems controlled by Wall Street bankers, principally J. P. Morgan and
Company and Kuhn, Loeb. In this perpetual-motion machine, Pierpont not only
reorganized roads but locked up their future financing. By acting as their trustee
or holding a large block of their stock, he ensured bondage to 23 Wall. The
banker was strong because the railroads were weak, and however much Pierpont
deplored railroad instability, he thrived on such chaos.
Pierpont alone could never have carried out the exhausting work of
morganization. Hence the importance, then and later, of Morgan partners. In
history books, they are often portrayed as mice scurrying in the background. Yet
many were towering figures in their own right, the shadow cabinet of the
Morgan government. The railroad reorganizations were carried out by a staff of
fewer than 150 employees. This was at a time when old-fashioned banks, such as
the House of Morgan, frowned upon typewriters as newfangled. Visitors always
marveled at the discrepancy between the bank’s power and its size. In 1905, Dr.
Hjalmar Schacht, later Hitler’s finance minister, recorded this impression: “The
entire office was contained in a single room on the ground floor in which were
dozens of desks where the employees worked. . . . No question of visitors being
formally announced, no waiting, or anterooms. Anyone who saw that a principal
was disengaged could walk right up to his desk. Relations between heads and
employees were very informal and free-and-easy without thereby lacking in
respect.”60
Pierpont selected partners not by wealth or to fortify the bank’s capital but
based on brains and talent. If the Morgan style was royal, its hiring practices
were meritocratic. The bank had many first-rate technicians. Pierpont’s
transportation man, Samuel Spencer, was said to know better than anyone in
America every detail of railroading “from the cost of a car brake to the estimate
for a terminal.”61 Most impressive was Charles Coster, a pale man with neatly
brushed hair, pensive eyes, and handlebar mustache. As a young man, Coster had
published a history of stamps, and his compulsion to organize and classify never
left him. He was the obscure wizard of morganization. Jack Morgan said of him,
“His mastery of detail was complete, his grasp of a problem immediate and
comprehensive and his power of work astonishing.”62 Wall Street caught fleeting
glances of this sedentary genius: “Men saw him by day—a white-faced, nervous
figure, hurrying from directors’ meeting to directors’ meeting; at evening
carrying home his portfolio of corporate problems for the night.”63 Yet Coster
was no downtrodden clerk: thanks to the wonders of voting trusts, he sat on the
boards of fifty-nine corporations!
The House of Morgan would have a contradictory reputation as both a
gentleman’s club and a posh sweatshop. During the morganization period, lights
burned at the bank long after the rest of Wall Street was dark. The partners
shouldered unbearable tasks. One journalist remarked that “the House of Morgan
was always known as a partner-killer,” and the body count mounted steadily.
One day in 1894, while waiting for an elevated train after the business day,
partner J. Hood Wright dropped dead at the age of fifty-eight. The most shocking
death was Coster’s, in March 1900, at age forty-eight. He contracted flu or
pneumonia and died within a week. Mixing sympathy with outrage, the New
York Times charged that the tasks piled upon Coster had grown “far heavier than
any one man ought to bear, or could bear with safety.” Naming Morgan partners
who died from overwork by 1900, John Moody said they had “succumbed to the
gigantic, nerve-racking business and pressure of the Morgan methods and the
strain involved in the care of the railroad capital of America. ’Jupiter’ Morgan
had alone come through that soul-crushing mill of business, retaining his health,
vigor, and energy.”64
In choosing partners, Pierpont wouldn’t tolerate a refusal. He was shameless
enough to recruit Coster’s successor, railroad lawyer Charles Steele, at Coster’s
funeral! As the cortege moved along, Pierpont presented a partnership to Steele
as a fait accompli. “Charles,” he said, “it looks as if the Lord had taken charge of
this question, and I am going ahead to make the partnership agreement.”65 The
courtly Steele later accumulated thirty-six corporate directorships, including
those of United States Steel and General Electric, and his wealth would rival
Jack Morgan’s.
Even as the exhausting pace of work created scandals, a Morgan partnership
became the most coveted financial post. Judge Elbert H. Gary, a chairman of
United States Steel, said of Pierpont’s partners, “He made them all wealthy
beyond their dreams.”66 Indeed, in exchange for exquisite torture, a Morgan
partner received a guarantee of riches and a seat on the high council of American
finance.
CHAPTER FIVE
CORNER
IN 1895, Pierpont Morgan engineered his most dazzling feat: he saved the
gold standard and briefly managed to control the flow of gold into and out of the
United States. The concept behind the gold standard was simple. Ever since
January 1879, the government had pledged to redeem dollars for gold, thus
insuring the value of the currency. To make this more than an empty boast and
reassure worried investors, Washington had a policy of keeping on hand at least
$100 million in gold coin and bullion.
In the early 1890s, huge amounts of gold began to flow from New York to
Europe. In the circuitous way of world finance, the trouble started in Argentina.
In the 1880s, the City of London was swept by a craze for Argentinean
securities, which attracted almost half of British money invested abroad. The
principal conduit was Baring Brothers, which shared a good deal of Argentinean
business with Junius Morgan. Then the Argentinean wheat crop failed and was
followed by a coup in Buenos Aires. The prospect of default hurt the Morgan
bank in London but nearly collapsed the august Barings, which lost heavily on
its Argentinean bonds.
To save Barings from bankruptcy in 1890, the Bank of England organized a
rescue fund, to which J. S. Morgan and Company and other rivals contributed.
The old Baring partnership was liquidated; the reorganized firm would never
regain its former power, and a major Morgan rival was weakened. Before long,
Barings shared supremacy in Argentina with the Morgans. Meanwhile, with a
stigma attached to foreign holdings, British investors retrenched and drained
gold from America. This exodus of metal was greatly accelerated by the 1893
panic, with its bank failures and railroad bankruptcies.
Adding to European jitters were American attempts to tamper with the U.S.
currency. Under the Sherman Silver Purchase Act of 1890, the U.S. Treasury had
to buy 4.5 million ounces of silver monthly and issue certificates redeemable in
gold or silver. This effectively put America on a bimetal basis—that is, money
was backed by both gold and silver—expanding the money supply. For the hardmoney men of Europe, this looked as if it were an effort by American debtors to
debauch the currency and repay loans in cheaper dollars. These creditors
venerated the gold standard as their safeguard against such backdoor default. So
European bankers redeemed their dollars for gold and shipped the gold back to
Europe. For Pierpont Morgan, this was an alarming throwback to the days when
George Peabody had to prove that Americans honored their debt. The Silver Act
was repealed in 1893 under pressure from Morgan and other bankers. But wary
Europeans feared that Populist forces might yet wreck the gold standard and
force them to accept unwanted silver for dollars.
Among the indebted farmers of the South and West, the gold standard
generated fanatic hatred. The United States was still an agrarian debtor nation,
and poor, rural debtors far outnumbered big city bondholders. These farmers had
many legitimate grievances, for they contended with the curse of steadily falling
prices in the late nineteenth century. Deflation meant they had to repay debt in
dearer money—a recipe for ruin. There was no central bank to expand credit
during hard times. At the same time, because of tariffs and industrial trusts, the
prices of finished goods didn’t fall as fast as the price of food. (Thanks to
Pierpont and the railway barons, freight rates actually rose.) So farmers
welcomed inflation—specifically, higher prices for their own produce—as the
only way to remain equal in the contest against bankers and industrialists.
This discontent made bankers the favorite bogeymen in rural political
demonology. So venomous was the mood that several western states outlawed
1
bankers, and Texas banned them altogether until 1904. This pervasive anger in
the hinterlands crystallized around the House of Morgan, which was seen as a
mouthpiece for European finance. A popular, grass-roots mythology claimed that
the Bank of England and New York bankers had suborned Congress into
enacting the gold standard. For decades, William Jennings Bryan rallied the
Populist faithful by inveighing against America’s “financial servitude” to British
capital.2 From this period dates the folklore of the House of Morgan as heartless
moneymen, traitors in the pay of British gold, glorying in the ruin of American
farmers.
The nineteenth-century inflationary nostrums that make for tedious study
today—greenbacks, free silver coinage, bimetallism, and so on—were attempts
by indebted farmers to lighten their debt load. As the 1893 panic worsened,
agrarian populists asked the government to mint silver coins and create cheap
money, a move supported by the new silver-producing states. Farming districts
scoffed at the notion that any damage might be done by going off gold. The
Atlanta Constitution remarked that “the people of this country, outside the
hotbeds of gold-buggery and Shylockism, don’t care how soon gold payments
are suspended.”3 For Pierpont, however, destruction of the gold standard would
subvert European faith in American securities and destroy his life’s work. As he
later said, his aim in 1895 was “to build up such relations of confidence between
the United States and the money markets of Europe, that capital from there could
be secured in large sums for our needs.”4
During 1894, the U.S. gold reserve dipped below the $100-million floor. Bad
money (silver) was driving good money (gold) out of circulation. By January
1895, gold was fleeing New York at a frightening pace. One could watch this
“flight capital” in action as gold bullion was loaded onto ships in New York
harbor, bound for Europe. At fashionable Manhattan restaurants, sporting men
placed wagers as to when America would go bust and declare its inability to
redeem dollars for gold.
The beleaguered president, Grover Cleveland, was a friend of the House of
Morgan and a staunch advocate of the gold standard. During the four years he
spent on Wall Street between his two presidential terms, Cleveland worked in the
law offices of Bangs, Stetson, Tracy, and MacVeagh. This was the law firm of
Pierpont’s father-in-law, Charles Tracy, located next door to the Morgan bank, at
15 Broad Street. Cleveland had been good friends with the shrewd Francis
Lynde Stetson, Pierpont’s lawyer for the railroad reorganizations and known on
Wall Street as Morgan’s attorney general. He also befriended many Wall Street
people and was one of the twelve pallbearers at the funeral of August Belmont,
Sr., in 1890. Although Pierpont was a Republican, he wasn’t antagonistic toward
the Democratic Cleveland. In 1884, he cast his lone Democratic vote for
Cleveland precisely because the candidate endorsed sound money.
As the gold reserve dipped, Cleveland faced a hostile Republican Congress,
which favored free coinage instead of gold; many prairie Democrats concurred.
Amid this gloomy deathwatch, Congress refused to grant President Cleveland
the authority to replenish the gold reserve through a public bond offering. At the
same time, Populist fury made resorting to private bankers like Morgan
unthinkable. Cleveland sat paralyzed. By January 24, 1895, gold reserves had
declined to $68 million, and gold coin was especially scarce at the nine
Subtreasuries around the country, including that in New York, across Wall Street
from the Morgan bank. As a crisis approached, Cleveland turned to the
Rothschilds in London, perhaps to deflect charges of being in Wall Street’s
pocket. When approached by Rothschilds about a bond issue, J. S. Morgan and
Company agreed to participate only if Pierpont handled the American end with
the Rothschild representative, August Belmont, Jr. On January 31, Pierpont and
Belmont met at the New York Subtreasury with William E. Curtis, the assistant
secretary of the Treasury. Although no action was taken, the report of the
meeting relieved skittish investors, and $9 million in gold on ships in the harbor
was returned to land overnight. For Populists, news of the Morgan-BelmontCurtis meeting confirmed suspicions of a Wall Street-Washington conspiracy.
In the cables he sent to the London partners during this period, Pierpont
affords a glimpse into his deepest ideological impulses—his contempt for
politics, his regard for European opinion, his allegiance to neoclassic economics,
and his disdain for certain Jewish firms. Referring to one leading Jewish house,
he said, “we should dislike see business largely in the hands of Speyer & Co. &
similar houses.” His identification with the London creditors was patent: “We all
have large interests dependent upon maintenance sound currency U.S. Important
use every exertion . . . success negotiations . . . greater factor is European
absorption even temporarily of bonds.”5 His dispatches were often fervent and
even melodramatic in tone.
By early February, the New York Subtreasury was losing gold rapidly. Default
seemed imminent. Yet the Treasury Secretary John G. Carlisle informed Morgan
and Belmont that the Cabinet had flatly rejected their proposed private bond
issue. So on Monday, February 4, Belmont set off for Washington, followed by
Morgan. Aware of Francis Stetson’s friendship with Cleveland, Morgan told him,
“There may be papers to be drawn and I want you,” and brought him along with
a new Morgan partner, the handsome young Robert Bacon.6 Pierpont told his
London partners that the United States was on “the brink of the abyss of
financial chaos” and that he wanted to help the U.S. government avert calamity.7
Morgan, Bacon, and Stetson took a private railroad car down to Washington,
hitched up to the Congressional Limited. When they arrived, they were greeted
by Secretary of War Daniel Lamont, who said that the president had decided
against a private syndicate and refused to see the party. Pierpont said
magisterially, “I have come down to see the president, and I am going to stay
here until I see him.”8 While Stetson tried to lobby Cleveland, Bacon applied his
charms to Attorney General Richard Olney. That night, in a technique he used to
steady his nerves, Pierpont played solitaire—a game called Miss Milliken—until
the early hours. After breakfast at the Arlington Hotel, he crossed a snowy
Lafayette Square to the White House. One pictures the famous stride, described
by a biographer as “elemental, jungle-like.”9
Pierpont was often taciturn in meetings. At the White House, obedient as a
schoolboy, he sat wordless while Cleveland, Attorney General Olney, and
Treasury Secretary Carlisle debated the issue. Edgy, he crushed an unlighted
cigar, leaving a pile of tobacco on his pants. Cleveland still clung to the hope of
a public bond issue, which would spare him congressional obloquy. Not until a
clerk informed Carlisle that only $9 million in gold coin remained in government
vaults on Wall Street did Pierpont pipe up, saying he knew of a $ 10-million
draft about to be presented. “If that $ 10-million draft is presented, you can’t
meet it,” Pierpont said. “It will be all over before 3 o’clock.” “What suggestions
have you to make, Mr. Morgan?” replied the president.10
Pierpont laid out an audacious scheme. The Morgan and Rothschild houses in
New York and London would gather 3.5 million ounces of gold, at least half
from Europe, in exchange for about $65 million worth of thirty-year gold bonds.
He also promised that gold obtained by the government wouldn’t flow out again.
This was the showstopper that mystified the financial world—a promise to rig,
temporarily, the gold market. There was some question as to the legality of the
proposed issue, and either Morgan or Carlisle dusted off an 1862 statute that
granted the Lincoln administration emergency powers to buy gold during the
Civil War. When the deal was concluded, Cleveland gave Pierpont a fresh cigar
to replace the one he had nervously ground up. Pierpont’s blood was now at full
boil. He wired London, “We consider situation critical, politicians appear to have
absolute control. If fail & European negotiations abandoned, it is impossible
overestimate what will be result U.S.”11
Populist pressure still demanded a public bond issue. As a practical matter,
Cleveland awaited congressional action on the Springer Bill, which would have
allowed the Treasury to sell long-term bonds; if Congress defeated it, Cleveland
thought, he could then resort to Wall Street bankers with far less popular abuse.
At the Tuesday-morning meeting, it was agreed that Morgan and Belmont should
return when the Springer Bill was killed. By the time it was defeated on
Thursday evening, Pierpont was already en route to Washington, arriving in a
blizzard.
News of the Morgan-Rothschild operation was a sedative for the financial
markets. When the syndicate bonds were offered, on February 20, 1895, they
sold out in two hours in London, in only twenty-two minutes in New York.
Pierpont was jubilant and exhausted: “You cannot appreciate the relief to
everybody’s mind for the dangers were so great scarcely anyone dared whisper
them.”12 Yet the syndicate was a victim of its success. It took up the bonds at
104½, then sold them at an opening price of 112¼; they quickly soared to 119.
For the cynical, this sudden appreciation proved the syndicate had cheated the
government and underpriced the issue. The interest rate of 3¾ was thought
extremely harsh. In just twenty-two minutes, the bankers had booked $6 or $7
million in profits. Morgan would later claim these figures were vastly
exaggerated and that the syndicate had earned less than a 5 percent return. Even
commentators such as Allan Nevins and Alexander Dana Noyes, otherwise
sympathetic to the operation, condemned the stiff terms. Nonetheless, the
bankers believed that they themselves had induced the confidence that had led to
the higher prices.
The Populist uproar was furious and laced with anti-Semitism because of the
Rothschild participation. Populist rabble-rouser Mary Lease called President
Cleveland a tool “of Jewish bankers and British gold.”13 The New York World
described the syndicate as a pack of “bloodsucking Jews and aliens.” In his
vehement denunciation in Congress, William Jennings Bryan asked the clerk to
read Shylock’s bond from The Merchant of Venice. Bryan always denied that his
attacks pandered to anti-Semitism. Campaigning in 1896, he told Jewish
Democrats in Chicago, “Our opponents have sometimes tried to make it appear
that we are attacking a race when we denounced the financial policy of the
Rothschilds. But we are not, we are as much opposed to the financial policy of J.
Pierpont Morgan as we are to the financial policy of the Rothschilds.”14
The gold syndicate, alas, was just a temporary victory: even Pierpont could
dam up the gold supply for only so long. By the summer, gold again left the
Treasury in large amounts. When a new loan was raised in early 1896, Pierpont
had a fresh scheme for a global syndicate which would include the National City
Bank of New York, Deutsche Bank of Berlin, and Morgan, Harjes of Paris.
(Perhaps to appease the anti-Semites, it was a syndicate of Christian bankers.)
But Cleveland didn’t want to incite Populist wrath a second time and decided on
a public loan, with Morgan taking only about half of a $67-million bond issue.
Despite his venality, the gold operation had been a tour de force for Pierpont.
He had functioned as America’s central bank, stepping into the historic breach
between Andrew Jackson’s 1832 veto of the second Bank of the United States
and passage of the Federal Reserve Act in 1913. So long as governments were
financially weak, with primitive monetary methods and small budgets, they had
to rely on private bankers. For his part, Grover Cleveland never regretted his
decision, praising the “lightning-like rapidity” with which Pierpont Morgan
reached his decision and extolling him as a man “of clear-sighted, far-seeing
patriotism.”15 By stubbornly adhering to principle, Cleveland alienated
smalltown farm elements in his own party. In 1896, the Democrats rejected him
in favor of William Jennings Bryan. For Bryan, Morgan was a Pontius Pilate
who nailed starving farmers to a cross of gold. The sheer savagery of these
attacks contributed to the secretive, cautious style of the Morgan bank, which, in
turn, further fed popular fantasy about its power.
During the 1896 presidential campaign, Pierpont lobbied for a gold-standard
plank in the Republican party platform. He entertained Mark Hanna, Ohio
banker and chairman of the Republican National Committee, aboard the Corsair
II. Generous contributions by Morgan and other bankers to the campaign of
William McKinley—23 Wall Street was hung with banners in his support—were
thought instrumental in persuading him to champion the gold standard, and in
1900 he signed a law bestowing upon it new legal status. The farmer-banker
conflict subsided somewhat when a European wheat famine pushed up farm
prices. Also, the Yukon gold rush and gold strikes in South Africa and Australia
helped expand the U.S. money supply and led to higher prices. The bitter
deflationary politics of the late nineteenth century subsided.
In the 1890s, Pierpont Morgan represented a fact unpalatable to Americans—
that America was still financially dependent on Europe. As a debtor nation, the
United States had to placate its creditors abroad. England exerted much the same
influence over American economic policy as Japan would nearly a century later,
when it financed much of the U.S. budget deficit in the 1980s. Like Japan,
England was criticized for curbing homegrown American excesses. As Keynes
noted, “A debtor nation does not love its creditor, and it is fruitless to expect
feelings of goodwill.”16 The ill will descended upon the House of Morgan.
Tutored in London finance, Pierpont knew that British bankers considered the
pound’s stability the basis of British wealth. In the nineteenth century, it was the
currency every investor wanted to hold. Pierpont adopted the same attitude
toward the dollar. Sound monetary policy in the United States would be a
precondition of America’s rise as the chief creditor nation. In the 1920s, by one
of those ironies so abundant in Morgan annals, the bank would put England itself
back on the gold standard, forcing a later British prime minister to suffer the
same repudiation by his own party as Grover Cleveland experienced in 1895.
Pierpont Morgan’s career, success often bred more controversy than
acclaim, so the twentieth century was his time of bittersweet triumph. Sleek and
portly in top hat and black overcoat, gray slacks reaching the tops of shiny shoes,
and a watch chain stretched across his paunch, he personified the new tycoon
and the industrial gigantism threatening pastoral America. His exploits were
rendered in mythic terminology. Life magazine produced a lasting catechism:
“Q. Who made the world, Charles? A. God made the world in 4004 B.C., but it
was reorganized in 1901 by James J. Hill, J. Pierpont Morgan and John D.
Rockefeller.”17 Finley Peter Dunne’s character Mr. Dooley pictured Morgan this
way: “Pierpont Morgan calls in wan iv his office boys, th’ prisidint iv a national
bank, an’ says he, ’James,’ he says, ’take some change out iv th’ damper an’ r-run
out an’ buy Europe f’r me,’ he says. ’I intind to reorganize it an’ put it on a
IN
paying basis.’ ”18 When Pierpont was quoted as saying “America is good enough
for me,” William Jennings Bryan’s Commoner snapped back, “Whenever he
doesn’t like it, he can give it back.”19 Editorial writers competed to mint Morgan
titles—king of trusts, morganizer of the world, financial titan, Napoleon of
finance, or, more simply, Zeus or Jupiter.
For a republican country lacking a feudal tradition, Morgan and other robber
barons were ersatz aristocrats, their feats avidly chronicled by the press. The
public reacted with fear and resentment but also with some vicarious pleasure.
When Pierpont brusquely ordered his chauffeur to bypass traffic and drive up on
a curb, the public was shocked by his arrogance but admiring of his implacable
will. When Wall Street broker Henry Clews said of Morgan, “He has the driving
power of a locomotive,” he suggested something brutish and uncontrollable, but
also something of superhuman strength.20
Now the world’s most powerful private banker, Pierpont regarded himself as a
peer of royalty. With regal munificence, he dispensed benefactions to the masses.
Regretting the dark interior of Saint Paul’s Cathedral in London, he underwrote
the expense of electric lighting. He visited the kaiser aboard his yacht and
advised King Leopold of Belgium on his finances. In 1901, Jack reported to his
mother how his father and London partner Sir Clinton Dawkins went down to
Gravesend “and dined with the King of the Belgians who wanted to see them
about some business and brought his yacht over because Father would not go to
Brussels.”21 Pierpont did business on his own territory, even if it sometimes
meant treating a king as a commoner.
In 1906, Pierpont vouchsafed a private tour of his art collection at 13 Princes
Gate, the townhouse he inherited from his father, to King Edward VII. He had
given the king financial advice, and the two often met at European watering
holes. Gazing at Sir Thomas Lawrence’s famous portrait of the countess of
Derby, the king said the ceiling was too low for the picture. “Why do you hang it
there?” he asked. “Because I like it there, sir,” said Pierpont tersely, feeling no
need to elaborate. His son-in-law Herbert Satterlee noted a perfect equality
between king and banker: “They were just two friends together and seemed quite
content to sit in silence sometimes and not try to entertain each other.”22 As a
coronation gift, Pierpont had given the king a $500,000 tapestry, which set off a
long-lasting relationship between the House of Morgan and British royalty.
Pierpont also pleased Italian royalty. In 1904, he was honored by Italy for
returning a treasured cope that turned out to have been stolen from the Cathedral
of Ascoli. King Victor Emmanuel conferred upon him the Great Cordon of
Saints Mauritius and Lazarus, making him a cousin of His Majesty whenever he
set foot on Italian soil.
Even as Pierpont aspired to heaven, he made religious men think in earthly
terms. After a 1905 audience, Pope Pius X breathed with regret: “What a pity I
did not think of asking Mr. Morgan to give us some advice about our
finances!”23 The House of Morgan would later advise the papacy on its
purchases of American stocks.
As a rule, Pierpont didn’t assemble palatial homes. In business as well, he
showed surprisingly scant interest in real estate, which produced so many
fortunes among his contemporaries. He would say laughingly that he only
needed “a place to live in and a lot in the cemetery,” and his son, Jack, proudly
confessed himself an ignoramus about land.24 Instead of grand estates, Pierpont
had his solid but unpretentious Madison Avenue townhouse and his Hudson
River retreat, Cragston, with its kennels, dairies, and gardens.
The splendid exception was Camp Uncas, in the Adirondack Mountains of
upstate New York, and that came to him only by accident. In 1898, a friend,
architect William West Durant, defaulted on a loan and signed over the rustic
camp as payment. Deep in the woods, Camp Uncas crouched beneath wooded
cliffs that were thick with evergreens. It covered more than a thousand acres and
required a year-round staff of thirty to care for the main lodge and dozens of
outlying buildings. Durant had popularized such millionaire retreats in
wilderness areas, producing the most lavish log cabins ever made. They had
thick wooden posts, walk-in fireplaces, and heavy exposed beams. To lend a
rustic, woodland atmosphere, the furniture was nicked with ax scars, and bark
was left on the pine logs. Wool Indian blankets, moose heads, and prize fish
decorated the walls. When Pierpont threw parties there, he would bring up a
private railroad car full of friends, and a baggage car loaded with racks of
vintage champagne would rattle along behind them.
With his vagabond nature, Pierpont was too restless to be a member of the
landed gentry. His splendor shone most fully at sea. As commodore of the New
York Yacht Club, he offered Morgan Cups for races and helped finance the
Columbia, which defended the America’s Cup. He even provided land for the
yacht club’s new headquarters, on West Forty-fourth Street.
Pierpont’s boats, more impressive than his homes, were the real monuments to
his wealth. In 1898, over his heated protest, the navy conscripted Corsair II for
use in the Spanish-American War. The Morgans had opposed the war, and Jack
(later labeled a warmonger for his role in World War I) lamented the “needless
waste of life & property.”25 The navy paid Pierpont $225,000 for the ship and
transformed it into the gunboat Gloucester. It saw action in the Battle of Santiago
and was damaged by a Spanish shell. Pierpont kept a piece of the ship’s
splintered mast as a memento.
Corsair III was an even more megalomaniacal affair, a modern phar-oah’s
tomb. Like a lover mourning his dead mistress, Pierpont had reproduced, at
fantastic expense, the carpeting and other details of Corsair II. Measuring over
three hundred feet at the waterline and requiring a crew of seventy, this blackhulled oceangoing ship was built on an altogether new and more garish scale.
Among its many details was a special humidor to freshen Pierpont’s black eightinch Meridiana Kohinoor cigars. He reveled in nautical spectacle. When he
returned by liner from Europe, the Corsair would steam out to greet him as he
waved his handkerchief from the larger ship’s deck. By transferring to the
Corsair, he could slip through quarantine without having to mingle with the
liner’s steerage passengers.
Pierpont often slept aboard his yacht and took clients for sunset cruises.
Sometimes, after entertaining friends at Cragston for the weekend, they would
all steam back to Manhattan on a Sunday evening, sleep on board, and then
awake to a plentiful breakfast before disembarking. The Corsair was a
therapeutic, if expensive, toy for Pierpont. He continued to slip into depressions
that he couldn’t shake, and his triumphs seemed only to deepen his gloom. The
sea alone would lighten his mood. As Jack told his mother of one 1898 ocean
voyage, “JPM has been so worried and bothered by the number of things on his
mind and this annoyance of war rumor that it will be a great thing for him to
have this voyage. Then if things calm down . . . he will come back for his Aix
cure and get 2 more voyages. Those are the only things which really seem to do
him any good.”26 Though this may have been partly a cover story—Jack’s way
of shielding his mother from his father’s growing number of affairs—it was also
true that for Pierpont Morgan the sea was always his sovereign remedy.
dawning of the new century was accompanied by the first great wave of
mergers in American history. Spurred by the telephone and telegraph and better
transportation, local markets were newly interlaced in regional and national
markets. And with American victory in the Spanish-American War, the attention
of business also shifted from internal expansion to a global quest for markets.
Driven by such changes in the economy, the number of mergers jumped from a
modest sixty-nine in 1897 to over twelve hundred by 1899.
So long as markets were local, industry seldom required large-scale financing,
and there was a Wall Street and City bias against manufacturers as small-time
businessmen. The Morgans had been mostly associated with railroad securities.
THE
(As late as 1911, the second Baron Revelstoke of Barings could snobbishly
protest, “I confess that personally I have a horror of all industrial companies.”27)
Now, as the great merger wave gathered pace, the focus of elite Wall Street
banks shifted from railroads to industrial trusts. In a trust, stockholders would
trade their shares in constituent companies for the “trust certificates” of a super
holding company. After enacting a law that permitted one company to own
another, New Jersey became the preferred state for trust incorporation. By 1901,
these new corporate leviathans dominated a long list of industries—sugar, lead,
whiskey, plate glass, wire nails, smelting, and coal.
Wall Street bankers effected many of these industrial transformations, and
their power swelled in tandem with their creations. Often, trusts were cobbled
together from family-owned or closely held firms that had a visceral contempt
for competitors’ joining the same trust; the bankers were the honest brokers who
arbitrated the disputes among them. Since the bankers appraised the value of
participating companies, they had to be fair; since this appraisal was seldom
accepted by everyone, they had to be stern. Most of all, they had to be trusted.
The populace might dread the power of Pierpont Morgan, but he paid his bills
promptly, always stuck by his word, and was almost universally respected
among businessmen. He also saw competition as a destructive, inefficient force
and instinctively favored large-scale combination as the cure. Once, when the
manager of the Moet and Chandon wine company complained about industry
problems, Pierpont blithely suggested he buy up the entire champagne country.28
In William McKinley, the business community had a Republican president
who approved of consolidation and didn’t interpose any bothersome antitrust
obstacles. The genesis of United States Steel in 1901 was inseparable from this
permissive regulatory mood, which followed the 1900 GOP landslide. With the
defeat of William Jennings Bryan and his anti-imperialist, trust-busting
supporters, the business community felt emboldened to try bigger things. A few
weeks after the GOP’s massive victory, Vice-President Theodore Roosevelt
invited Elihu Root, the secretary of war, to attend a dinner in honor of Pierpont
Morgan. “I hope you can come to my dinner to J. Pierpont Morgan,” he wrote.
“You see, it represents an effort on my part to become a conservative man in
touch with the influential classes and I think I deserve encouragement.”29
This dinner preceded by a week the first discussions about U.S. Steel and
must have reassured Pierpont that the McKinley administration would be supine
in its attitude toward trusts. The inception of the steel trust is still debated. The
more colorful versions attribute the idea to steelman John W. “Bet-a-Million”
Gates, who allegedly came up with it while shooting pool at the Waldorf-Astoria
Hotel, then on Fifth Avenue at Thirty-fourth Street. A former barbed-wire
salesman and stock market plunger, Gates was a stout, raffish-looking character,
with a derby always tipped back on his head and a big cigar stuck in the corner
of his mouth. He used to bet on the speed of raindrops running down a train
window and won his nickname from an enormous wager he once made on an
English thoroughbred. Not content with an American steel trust, Gates wanted to
include German manufacturers and attempt a global cartel.
The more sober versions of U.S. Steel trace the trust to a looming collision
between Andrew Carnegie’s steel company and two of Pierpont’s steel creations,
Federal Steel and National Tube. As the top manufacturer of crude steel,
Carnegie decided in July 1900 to branch out into finished products, such as pipe
and wire. As head of the second largest steel group, Pierpont feared a replication
of the railroad chaos, with overbuilding and price wars. He growled that
Carnegie would “demoralize” the entire industry through competition. Bracing
for a grim battle, he had his makers of finished products prepare to meet
Carnegie head-on in crude steel.
On December 12, 1900, a week after he was feted by Teddy Roosevelt,
Pierpont attended a famous dinner held for Charles M. Schwab at the University
Club in Manhattan. A handsome young man with a long, smooth face, dark hair,
and clear brow, Schwab was a faithful lieutenant of Andrew Carnegie’s. Morgan
sat at Schwab’s right and stared at his plate as the young man delivered his afterdinner address. A mellifluous orator and self-dramatizing individual, he evoked
for Morgan and the eighty other financiers present a vision of a steel trust which
would handle all phases of the business, from mining ore to marketing steel
products; the Carnegie and Morgan steel enterprises would be the trust’s obvious
nucleus. The steel trust was to be a superior sort of conspiracy. Through
economies of scale, it would attempt to lower prices and compete in burgeoning
world markets. It was a form of national industrial policy, albeit conducted by
businessmen for private gain.
After the dinner, Morgan, intrigued, conferred with Schwab for half an hour.
As Morgan partner Robert Bacon later said, “It was apparent that [Morgan] had
seen a new light.”30 It has never been clear whether Schwab acted at Carnegie’s
behest or whether he planned to recruit Pierpont first, then take the proposal to
Carnegie. In any event, within three weeks, Morgan, Bacon, Gates, and Schwab
worked out a proposal in an all-night session at Morgan’s “black library.” The
proposed trust would control more than half the steel business. Besides Carnegie
Steel and Morgan’s Federal Steel, it would include American Tin Plate,
American Steel Hoop, American Sheet Steel, American Bridge, American Steel
and Wire, National Tube, National Steel, Shelby Steel Tube, and Lake Superior
Consolidated Mines.
In forging U.S. Steel, Pierpont had to deal with two industrialists who
represented very different aspects of American business—Andrew Carnegie and
John D. Rockefeller. Both were hard-bitten individualists, scornful of bankers,
who preferred to finance their operations from retained earnings. Rockefeller
entered the deal through his ownership of ore mines and shipping companies on
Lake Superior. Pierpont considered both men too crude for his stuffily refined
tastes; they saw him as pompous and overbearing. The prudish Carnegie also
disapproved of Pierpont’s adulterous escapades. “Carnegie frowned on anything
savoring of the flesh and the devil,” Schwab said.31
After the meeting in the “black library,” Schwab sounded out Carnegie on his
willingness to sell his steel company to the trust. After a game of golf at Saint
Andrews Golf Club in Westchester, Carnegie ruminated, then penciled his
selling price, $480 million, on a scrap of paper. He wanted payment in bonds,
not watered stock. When Schwab delivered the slip of paper to Morgan, the
banker stared at it and said promptly, “I accept this price.”32 In the hurly-burly,
Pierpont didn’t formalize the deal with a signature and weeks later had to send a
lawyer uptown with a contract. Despite his veneration of Junius Morgan,
Carnegie enjoyed petty jousting with Pierpont. When Pierpont invited him to 23
Wall Street, Carnegie insisted that Morgan come to his own Fifty-first Street
office instead. After a cool fifteen-minute chat, Morgan said in parting, “Mr.
Carnegie, I want to congratulate you on being the richest man in the world.”33
Thin-skinned and vindictive, Carnegie gloated over the deal: “Pierpont feels
that he can do anything because he has always got the best of the Jews in Wall
Street. . . . It takes a Yankee to beat a Jew, and it takes a Scot to beat a
Yankee.”34 Carnegie celebrated too quickly. He later admitted to Morgan that he
had sold out too cheap, by $100 million. Not about to spare the industrialist’s
feelings, Morgan replied, “Very likely, Andrew.”35
In trying to coax recalcitrant companies into the steel trust, Pierpont showed
his ringmaster’s flair for cracking the whip. He was irate with those who tried to
extract undue advantage. During negotiations at 23 Wall, one major holdout was
Bet-a-Million Gates and his American Steel and Wire. To break a deadlock,
Pierpont materialized like the wrath of God and thumped a desk. “Gentlemen, I
am going to leave this building in 10 minutes. If by that time you have not
accepted our offer, the matter will be closed. We will build our own wire
plant.”36 His bluff called, Gates capitulated and sold out. Pierpont then went
home, boyishly elated.
The House of Morgan generally didn’t sponsor new companies and abhorred
stock speculation. Junius Morgan had long ago advised his son, “I would
recommend your forming a resolution never to buy any stock on speculation.”37
So Pierpont’s promotion of U.S. Steel in early 1901 lent “old money” cachet to
the rage for trusts. The year 1901 was not unlike 1929 or 1987: the stock market
was on everybody’s lips. Daily share volume tripled. Wall Street seers babbled
of a new age, and newspapers recounted tales of hotel waiters, business clerks,
doormen, and dressmakers who made fortunes on Wall Street.38
U.S. Steel stoked the bonfire of speculation. At a time when million-dollar
issues were considered large, the new corporation was capitalized at a whopping
$1.4 billion ($23 billion in 1989 dollars)—the first billion-dollar corporation in
history. At the time, all U.S. manufacturing combined had only $9 billion in
capitalization. To manage the flood of bonds and stock that financed the deal,
Pierpont mustered a monster syndicate of three hundred underwriters. He
appointed ace stock manipulator James R. Keene—a sharp-faced man with a
pointed beard, known as the Silver Fox of Wall Street—to make a market in the
shares. By simultaneously buying and selling shares, Keene created steadily
rising prices and the illusion of tremendous volume. Despite predictions that so
much stock would saturate the market, the issue’s success confirmed the boast of
Morgan partner George W. Perkins that a Morgan issue “from the desert of
Sahara” would find buyers.39 For its services, the syndicate took in $57.5 million
in stock (nearly $1 billion in 1989 dollars). The U.S. Steel promotion made
explicit the marriage of finance and industry that marked the Baronial Age;
when four Morgan partners joined the new trust’s board, the marriage was
consummated.
For many observers, the sheer size of U.S. Steel seemed sinister and
unnatural. Even the Wall Street Journal admitted to “uneasiness over the
magnitude of the affair.”40 Among others, Yale president Arthur Hadley, a noted
economist, saw a new need for federal control of large corporations. Ray
Stannard Baker, later Woodrow Wilson’s biographer, pointed out that the new
corporation would have revenues and expenses exceeding the budgets of all but
a few world governments.41 Yet Wall Street was heedless of the critics and
celebrated with a record volume of trading. In January 1901, the Big Board
traded a record two million shares in one day; after the launching of U.S. Steel
that spring, volume reached three million shares. Wall Street was so awash in
shares that the Stock Exchange declared a special holiday just to catch up on
paperwork.
An unending controversy would surround U.S. Steel: was it Pierpont’s
greatest deal, as he believed, or a giant scam? The share flotation made multi-
millionaires of dozens of steelmen, and the spectacle of so much sudden wealth
appalled the public. In 1905, Charles Schwab, U.S. Steel’s first president, built a
seventy-five-room mansion on Manhattan’s Riverside Drive, complete with a
pipe organ, art gallery, bowling alley, private chapel, and sixty-foot swimming
pool. Gaudy mansions went up all over Pittsburgh with the new steel money,
symbolizing a new class of nouveaux riches industrialists.
Later the U.S. Bureau of Corporations, a federal agency set up by Teddy
Roosevelt, would value U.S. Steel at only half its $1.4-billion selling price,
suggesting that investors had purchased an enormous bag of hope, at least half of
it hot air. From Vanderbilt, Morgan had learned the trick of basing value not on
current assets but on projected earnings. U.S. Steel’s subsequent history
provided evidence for both detractors and admirers. From an opening price of
38, its stock zoomed to 55, only to skid to less than 9 during the “rich man’s
panic” of 1903. By January 1904, U.S. Steel couldn’t even cover its dividends.
Yet it is fair to say that in time the enterprise expanded to the contours of
Morgan’s vision, becoming America’s foremost steel company. It amply
rewarded its investors—at least, the patient ones.
the growing pomp of Pierpont Morgan lay an ever-present
vulnerability. If tragedy, as Aristotle said, has the power to arouse fear and pity,
then Pierpont wore a tragic mask. In 1903, Pierpont sat for two minutes as
Edward Steichen snapped the famous photograph of him: from deep shadow and
gripping the blade-like chair, Pierpont stares out, a tense crease between his
brows, his collar stiff, his eyes pitiless points of lights, the gaze legendary in its
terror. Steichen tried to make him turn, but Pierpont, self-conscious about his
nose, stared straight ahead. The photographer snapped him bristling with anger.
Pierpont hated the photo and tore up the first prints. Yet there was sadness as
well as fire in the eyes—volcanic energy and despair. The photograph captured
the man whole. When Pierpont later relented and offered to pay a stratospheric
$5,000 for the photo, the wounded Steichen took two years to deliver copies.
The blazing eyes were linked to the grotesque nose. As the years went by, the
acne rosacea made Pierpont’s nose monstrous in size and hideous in shape. The
nose was invariably touched up in official photographs, perhaps adding to the
shock of those who saw him in person. Of his initial encounter with Wall Street’s
Cyrano, art dealer Joseph Duveen wrote, “No nose in caricature ever assumed
such gigantic proportions or presented such appalling excrescences. If I did not
gasp, I might have changed color. Morgan noticed this, and his small, piercing
eyes transfixed me with a malicious stare.”42 Many anecdotes link Morgan’s
BEHIND
nose with his short temper—an old story of the vanity of the mighty. He would
furiously avenge taunts, and one writer said he never recovered from the phrase
“a ruby-visaged magnate.”43 When Bet-a-Million Gates dubbed him Livernose,
the jest proved costly: Pierpont blackballed Gates from the Union League and
New York Yacht clubs. About his nose, Pierpont could be more sensitive than he
was about his trusts. After the newspapers of clubmate Joseph Pulitzer attacked
his business dealings, Pierpont complained to the newspaperman not about the
allegations, but about the prominence of his nose in the papers’ cartoons, which
he thought very unfair.
Everybody came to terms with the nose differently. Lady Victoria SackvilleWest, probably Pierpont’s last mistress, recorded in her diary in 1912, “I have
never met anyone so attractive. One forgets his nose entirely after a few
minutes.”44 Perhaps intimates did, but not rival businessmen. And children
found it scarily hypnotic. When a later partner, Dwight Morrow, brought
Pierpont to his home, his wife Betty—having warned the children not to mention
the nose—asked the tycoon, “Do you like nose in your tea, Mr. Morgan?”45
Pierpont tried everything to cure it, including an electrical remedy
recommended by England’s Queen Alexandra. But it persisted, like nature’s
revenge, reminding him of his humanity. In philosophic moments, he converted
it into a mark of pride. When the Russian minister of finance, Count Witte,
suggested surgery, he replied, “Everybody knows my nose. It would be
impossible for me to appear on the streets of New York without it.”46 Still more
grandly, he said his nose “was part of the American business structure.”47
It was probably the nose that made Pierpont eager to hire handsome young
men, and he often sent pedigreed collie puppies as a sign of impending
partnerships. Over time, the early reputation of Morgan partners as harried
technicians caught in the grinding machinery of railroad reorganizations gave
way to another equally pronounced tradition: the Morgan partner as elegant
fashion plate, suave member of the Social Register catering to rich clients. “A
homely man had no chance of being selected a Morgan partner,” wrote an early
Pierpont biographer. The same could be said, with a few exceptions, of the bank
under his son, Jack.48
The prototype was Robert Bacon, taken on as partner in 1894 after J. Hood
Wright died suddenly. As soon as Bacon was hired, his former boss, Major
Henry Lee Higginson, warned him, “Don’t overwork like Coster just because
you can and like to do it. He is wonderful—and unwise—to do so.”49 Trim and
athletic with a strong, wide face and debonair mustache, Bacon was called the
Greek God on Wall Street. As a Harvard undergraduate (and classmate of Teddy
Roosevelt’s), he boxed, ran the hundred-yard dash, captained the football team,
was president of the Glee Club, and was number seven on the university crew
team and Model Man of his class; his presence at the Corner of Broad and Wall
inaugurated a new image for the Morgan partners. With Bacon in mind, a
novelist wrote, “When the angels of God took unto themselves wives among the
daughters of men, the result was the Morgan partners.”50 Pierpont doted on
Bacon and wanted him constantly by his side. It was said Morgan had “fallen in
love” with Bacon and “rejoiced in his presence.”51
Bacon’s elevation in the bank signaled a problem with the Morgan empire:
Bacon, a charming lightweight, reflected Pierpont’s fear of hiring commanding
figures. That Bacon was second in command spoke poorly of his boss’s
managerial judgment. Art critic Roger Fry saw Morgan as a vain, insecure
despot who “likes to be in a position of being surrounded by people he has in his
power to make and unmake.”52 The most talented early partners—the apostles of
Pierpontifex Maximus, or Jupiter’s Ganymedes, as they were called—might
have been legal and financial wizards, but they were not leaders. Since they were
few in number—New York had six partners in the 1890s; the Philadelphia office,
four—they had to pull enormous weight.
The danger of Pierpont’s despotism was glaringly exposed during the socalled Northern Pacific corner of 1901, perhaps the most controversial takeover
fight in American history. After U.S. Steel was successfully launched, Pierpont
had sailed to France, where he entertained a dark French countess on the Riviera,
leaving the firm in Bacon’s hands. Since Coster’s death the year before, Bacon
knew he was in over his head and reeled under the responsibility. “My life is
simply engrossed in this maelstrom,” he told his wife.53 He was soon blindsided
by the most powerful Wall Street combination outside that of the Morgan firms
—an amalgam of Edward H. Harriman, William Rockefeller, the National City
Bank, and Kuhn, Loeb. It was a ganging up of Pierpont’s most determined
enemies.
A battle had been brewing since 1895, when Pierpont decided not to
reorganize the bankrupt Union Pacific, which he scoffed at as “two streaks of
iron rust across the plains.”54 His willingness to write off America’s
southwestern states provided an opening for outsiders. Edward Harriman took up
the Union Pacific and merged it with the Southern Pacific. He and his bankers,
the Jewish house of Kuhn, Loeb, dominated the southwestern roads as invincibly
as Morgan did those of the East and the Northwest. The Northern Pacific corner
was the thunderous, head-on crash of the railroad systems under the personal
dominion of Harriman and Morgan.
Harriman was a very different type from Pierpont. He was short and bandylegged, had shifty eyes, and wore wire-rimmed spectacles, an unkempt
mustache, and a peevish expression. Like many on Wall Street, he was the son of
a poor clergyman and an unabashed social climber. A crack shot, he had a taste
for blood sport and played tough on the stock exchange as well. Where Pierpont
preferred back-room deals sealed with a handshake, Harriman was a market
operator—more a raider than a deal maker. Where Pierpont usually served as
proxy for bondholders, Harriman preferred to buy common stock and exert
direct control. Finally, where Morgan was the establishment figure, Harriman
was an embittered outsider who showed the damage that could be done by a
bright man barred from Pierpont’s club. If bankers proved they could dominate
companies through voting trusts and other devices, Harriman showed that the
stock raider could dominate both the bankers and their companies.
Harriman’s banker was the German-born Jacob Schiff, the unbending, whitebearded patriarch of Kuhn, Loeb who was second only to Pierpont as a financial
railroad overlord. Schiff was such a grandee that one private Pullman car was
seldom enough for him when he traveled.55 He was stiff and formal and as
haughty as Pierpont Morgan himself.
Like the London merchant bankers, the early Jewish bankers on Wall Street
had started out as dry-goods merchants: the Lehmans began as Alabama cotton
brokers; Goldman, as the owner of a Pennsylvania clothing store, Kuhn and
Loeb, as Cincinnati clothiers; and Lazard, in a New Orleans dry-goods business.
These firms were dynastic, with only blood or marriage securing partnerships.
They worked in the interstices left by the big Christian houses and dealt more
directly in markets than the Morgans did. Markets were considered coarse by
fancy gentile bankers. So Goldman, Sachs specialized in commercial paper,
Lehman in commodity trading. Around 1900, they began underwriting shares for
companies that were spurned by the gentile firms as too lowly—retail stores and
textile manufacturers, for instance. Among them was Sears, Roebuck, introduced
by Goldman, Sachs and Lehman Brothers in 1906. Of such relatively small
issues, the gentile firms would sniff, “Let the Jews have that one”—snobbery for
which they paid dearly in the twentieth century.56
Schiff didn’t want to settle for the scraps left to the Jews. Alone among the
Jewish bankers he had the gumption to play the grand game and contest Morgan
in government issues and railroad financing. He fun-neled German and French
money into American shares no less expertly than Pierpont did with British
money. Much of Kuhn, Loeb’s exceptional power derived from the fact that it
voted stock shares in American railroads as proxy for legions of German
investors.
Morgan referred to Schiff dismissively as “that foreigner.”57 Schiff, in turn,
professed to admire Morgan, but his compliments sometimes had a slightly
hollow, envious ring. After Pierpont’s heroic role in the 1907 panic, Schiff said,
“Probably no one could have got the banks to act together . . . as he did, in his
autocratic way.”58
Political, ethnic, and religious differences among bankers permeated Wall
Street in the early 1900s. The Yankee-Jewish banking split was the most
important fault line in American high finance. And since the two groups would
come to dominate American investment banking, their feuds form a recurring
theme in the Morgan banking saga. Pierpont’s anti-Semitism was well known.
Said an early biographer: “He had a deep-seated anti-Semitic prejudice and on
more than one occasion needlessly antagonized great Jewish banking firms.”59
His dislike of Jews may have been sharpened by dealings with the Rothschilds.
The Jewish tycoon Joseph Seligman noted Pierpont’s “freeze-and-thaw attitude”
toward him, which he attributed to his discomfort with Jews.60 During thaws, the
two men collaborated on issues, and when Seligman was barred from a
fashionable Saratoga hotel, the Morgan bank signed an advertisement protesting
the exclusion. In addition, Kuhn, Loeb, in particular, managed many syndicates
with the Morgans. The strain of anti-Semitism running through the Morgan story
is fascinating precisely because it had to be so carefully suppressed.
The group making common cause with Harriman and Schiff against Morgan
in 1901 was the Rockefellers. In 1881, John D. Rockefeller had financed the
Standard Oil trust from its huge cash reserves, staying free of Wall Street. As the
1880s progressed, Standard Oil was generating so much cash that the
Rockefellers looked about for a financial repository. They chose the National
City Bank—the forerunner of today’s Citibank—and pumped in so much money
that by 1893 it ranked as New York’s largest bank. It was a significant
development: at a time when bankers tightened their grip on industry, here was
an industrial empire fastening its grip on banking. National City became known
as the oil bank, much as J. P. Morgan and Company would be called the steel
bank. National City Bank’s president, James Stillman, with his coldly alert and
penetrating eyes, would oppose Pierpont in the Northern Pacific battle but
become a close ally later on. Two of Stillman’s daughters married two of
William Rockefeller’s sons, sealing the union of the Rockefellers with the
National City Bank.
The Northern Pacific quarrel began when northwestern railroad magnate
James J. Hill decided to buy a midwestern road called the Chicago, Burlington,
and Quincy. Hill was a garrulous man with a bushy, white untamed beard,
shoulder-length hair, and a troll’s face. With Morgan’s help, he had consolidated
the Great Northern and Northern Pacific into a railroad system that dominated
transport in the northwestern United States. The purchase of the CB&Q,
Harriman feared, would provide Hill with an entree into Chicago and a possible
connection for a transatlantic line; it might even link up with Morgan’s New
York Central.
Schiff and Harriman pleaded with Hill and Morgan for a stake in the road but
were rebuffed. Harriman said implacably, “Very well, it is a hostile act and you
must take the consequences.”61 In a manner that anticipated mergers of the
1980s, Schiff and Harriman decided to swallow the railroad that had swallowed
the CB&Q—the Northern Pacific. The Northern Pacific ran west from
Wisconsin through North Dakota and Montana, terminating in Seattle,
Washington. Schiff, torn between dreams of glory and dread of Morgan, passed a
sleepless night before acceding to Harriman’s plan. It was an extraordinary act
lèse-majesté, because the House of Morgan had a substantial stake in the
Northern Pacific and wouldn’t tolerate such an attack.
The raiders went into the market secretly, buying up $78 million in Northern
Pacific shares—at the time, the largest such market operation in history. As share
prices rose in April 1901, Pierpont credited it to the bullish tone of stocks set by
the launching of U.S. Steel. Schiff cunningly circulated rumors that the rise
reflected Northern Pacific’s enhanced value after the CB&Q purchase. When a
block of shares came into Robert Bacon’s hands, he gladly sold. Even the
railroad’s board sold. It was a masterly con job by Harriman’s forces,
camouflaged by the ebullient financial markets that followed McKinley’s
reelection. The newspapers noted that many young men-about-town with
newfound stock market fortunes were now calling themselves financiers. At the
same time, many investors, apprehensive about the giddy market activity,
predicted a general panic.
Then, in May, Northern Pacific stock shot up so fast it seemed to levitate. Hill,
who had been beguiled by Bacon’s beauty, was troubled by bad dreams. Asleep
in his private railroad car in Seattle, he was visited by “a dark-complected angel”
who warned of trouble in New York. Hill raced clear across America to Wall
Street. On Saturday, May 4, he alerted Bacon to what he saw as a catastrophe in
the making. They cabled Pierpont, now in Aix-les-Bains, and awaited
instructions.
At this point, the Harriman-Schiff forces were 40,000 shares short of majority
control of the Northern Pacific. That Saturday morning, Harriman ordered Kuhn,
Loeb to buy the needed stock, but Jacob Schiff was attending services at Temple
Emanu-El, and the order never got executed. The lapse was fateful, for the next
day Pierpont told Bacon to purchase 150,000 shares at any price. That Monday
morning, Morgan brokers fanned out across the Exchange floor, and insane
trading in Northern Pacific ensued.
The jumps in the stock were staggering. On Tuesday, May 7, the stock closed
at over 143—a gain of 70 points in three days. The next day, it shot up to 200.
This was a corner, a bloody trap for speculators. Speculators kept “shorting” the
stock—that is, selling borrowed shares in the belief that the bubble would pop
and enable them to buy back the shares at a cheaper price. Instead, the Northern
Pacific geyser kept rising, forcing them to liquidate shares of other companies to
pay for their borrowed Northern Pacific shares. Hence, the problem was
generalized to the entire stock market.
By Wednesday, almost every stock on the Exchange was crashing, with
money sucked from the rest of the list to feed the spectacularly surging Northern
Pacific. Then came Thursday, May 9, and the biggest market crash in a century.
Northern Pacific zoomed up as much as 200 or 300 points per trade, finally
hitting 1,000. Then it dropped 400 points on a single trade. The Exchange was a
scene of wild pandemonium as speculators found it impossible to locate
certificates to cover short sales. The New York Times reported: “Brokers acted
like insane men. . . . Big men lightly threw little men aside, and the little men,
fairly crying with indignation, jumped anew into the fray, using hands and arms,
elbows, feet—anything to gain their point. . . . To the spectators in the distant
gallery of the Produce Exchange it was something incomprehensible, almost
demonic—this struggle, this Babel of voices, these wild-eyed excited brokers,
selling and buying, buying and selling.”62
When brokers appeared with Northern Pacific certificates, they were clawed
at by men who feared they would be ruined without them. One broker hired a
train from Albany just to deliver one certificate of five hundred shares. Amid
this free-for-all, Pierpont Morgan regained control of the Northern Pacific, but at
the price of a full-blown panic. It was the madly destructive act of an egotist bent
on winning at any cost. The carnage ended when a new Morgan partner, George
Perkins, acting with Schiff and Harriman, announced that short sellers would be
allowed to buy up shares at only $ 150 a share. Had the action not been taken,
more than half the brokerage houses on Wall Street might have gone belly-up. It
had been a pageant of extreme cupidity, one that sparked public apprehension
about the omnipotent new financial magnates. The New York Herald banner
headline of May 9, 1901, summed up the popular view: “GIANTS OF WALL STREET,
IN FIERCE BATTLE FOR MASTERY, PRECIPITATE CRASH THAT BRINGS RUIN TO HORDE OF
PYGMIES.”63
The devil-angel nature of Pierpont Morgan was such that he alone started and
stopped panics. He often appeared to be two different people of identical
appearance but contrasting personalities. Comically, at the panic’s height, a New
York Times reporter found a forlorn investor named Jefferson M. Levy at the
Waldorf-Astoria; Levy sighed, “If Mr. Morgan had been here this never would
have happened.”64
Pierpont brooked no criticism of his role in the Northern Pacific. Appearing at
the Morgan, Harjes offices in Paris, he said with baronial bluntness, “I owe the
public nothing.”65 The closest he ever came to an explanation was a reiteration
of the Gentleman Banker’s Code: “I feel bound in honor when I reorganize a
property and am morally responsible for its management to protect it, and I
generally do protect it.”66 Yet his power on Wall Street was now such that like a
female elephant charging to protect her young, he couldn’t help but crush
innocent bystanders. He was too large for the flimsy regulatory structures that
encased him; he had outgrown his age. Coming after the U.S. Steel promotion,
the Northern Pacific corner reinforced the view that the public was being held
hostage by the stock manipulations of a few Wall Street moguls.
For the most part, President McKinley was deaf to such outrage. Then, on
September 6, 1901, he was shot by an anarchist named Leon Czolgosz as he
stood in the Temple of Music at the Pan-American Exposition in Buffalo. We
have graphic descriptions of Pierpont’s reaction to the news. He was about to
leave 23 Wall Street for the evening and already had on his silk hat when a New
York Times reporter rushed in with the report. “What?” said Pierpont, seizing the
man’s arm. He stared into his eyes, overcome with amazement. Then he slumped
into a desk chair, awaiting the confirmation that soon came by telephone. “This
is sad, sad, very sad news,” he told the Times reporter.67 Other accounts describe
him as red-faced and almost reeling with shock.
McKinley’s assassination would be a turning point in Pierpont Morgan’s life,
for it installed in the presidency forty-two-year-old Theodore Roosevelt, a man
whose view of big business was far more ambivalent than his predecessor’s. Jack
Morgan was mildly hopeful about the new president, although TR’s noisy chatter
had grated on him after the March inauguration. “What I fear is that he may
perhaps talk too much which would be very undesirable,” he said.68 In fact, the
presidency of Teddy Roosevelt would mark the start of periodic warfare between
the White House and the House of Morgan, warfare that would rage through
three straight presidencies—those of Roosevelt, Taft, and Wilson.
Two months after McKinley’s assassination, the feuding parties of the
Northern Pacific corner made their peace. They set up a holding company, the
Northern Securities Co., which merged the Northern Pacific, Great Northern,
and CB&Q lines. Both Hill and Harriman were given seats on the board. If this
brought peace between the two most important groups on Wall Street, it also
heightened public alarm that a railroad monopoly had taken hold west of the
Mississippi. “And it will be much easier for them to obtain the second half than
it was the first,” said one newspaper editor, foreseeing a subsequent eastern rail
monopoly. “One railroad after another will slide gently into their grasp until any
passenger anywhere who objects to traveling on their lines can take a trolley car
or walk.”69 The dreams of the architects of Northern Securities went beyond the
most vivid Populist fear. After tying up transcontinental railroads, they planned
to link them with steamship lines to Asia—a vision that later would culminate in
Edward Harriman’s plans for an around-the-world transportation network.
Pierpont, meanwhile, meditated on a rail-ship monopoly of the North Atlantic,
extending his domain beyond the borders of the United States. Wall Street
increasingly gazed abroad.
Besides bankrupting thousands of investors, the Northern Pacific corner
claimed a last casualty—Morgan partner Robert Bacon. Although he remained at
23 Wall for another year and a half, his nerves were shot by the strain. On
doctor’s orders, he rode to hounds for two years—a very Morgan form of
therapy. When he returned to the United States from his travel abroad, he
occupied a series of positions—assistant secretary of state, secretary of state, and
ambassador to France—of a far less taxing nature than being chief lieutenant to
J. Pierpont Morgan.
CHAPTER SIX
TRUST
ASSIGNED to J. S. Morgan and Company in London in 1898, Jack Morgan,
now thirty-one, was a lonely prince in exile. Tall and broad-shouldered, he was a
husky young man with a broad face, a direct gaze, a black mustache, and
prominent nose that never assumed the gross proportions of his father’s. From
afar, Jack watched the epochal events unfolding in New York—the formation of
U.S. Steel and the cornering of Northern Pacific—with a vague yearning. He
may have felt his date with destiny had been continually rescheduled. While
conceding London’s pleasures, he complained to his mother, “when I think of
home the time does seem a bit long.”1 He grumbled how “profoundest peace”
reigned at 22 Old Broad Street, while everything was “jumping about” at 23
Wall Street.2 Worst of all, he had to watch Pierpont turn the spotlight of his favor
on Robert Bacon.
At first, Jack’s stay in London was meant to be temporary, but it took a few
years before tangled personnel problems at J. S. Morgan and Company were
straightened out. In 1897, Pierpont’s brother-in-law Walter Hayes Burns died and
was replaced by Jack’s cousin Walter Spencer Morgan Burns. The senior Burns’s
death left the London bank short of experienced hands. Young Walter’s sister
Mary married Lewis Harcourt, the first Viscount Harcourt, spawning a branch of
“British Morgans” who were lineal descendants of Junius Morgan. From this
blue-blooded lineage would spring Lord William Harcourt, a postwar Morgan
Grenfell chairman. A photograph of Pierpont at a house party at the Harcourt
estate, Nuneham Park, in 1902 shows Mary Harcourt seated next to King
Edward VII.
During his London exile, which lasted until 1905, Jack often seemed
embarrassed by his remoteness from Pierpont. To inquiries as to whether
Pierpont would attend Edward VII’s coronation, he confessed sheepishly, “He is
not easy to keep track of and I have almost given up.”3 (In the end, Teddy
Roosevelt made Jack a special attaché to the Westminster Abbey coronation.)
Once when Jack wished to join his father for a naval pageant at Spithead, he
lamented that Pierpont “will probably not think of asking us.”4 He was often
excluded from business deals and had to read about the U.S. Steel trust in the
newspapers.
Pierpont liked Jack but found him lacking in fire and grit, which only
accentuated Jack’s insecurities. When Pierpont sailed from London in 1899, Jack
wrote his mother how things couldn’t proceed in New York in Pierpont’s
absence. He added, “I only hope it will never come to that with me. Probably it
won’t owing to the fact that things always will move on without me.”5 The scope
of Pierpont’s business ventures was too vast to allow for a son’s self-doubt to be
of concern, and the problem was exacerbated by Jack’s not being as bright or as
forceful as his father.
Another son might have rebelled. Jack sulked and pined, waiting for approval.
Like Junius, he worried perpetually about Pierpont’s work binges and
“imprudent” appetite and was steadily watchful of him. He described with
whimsical humor the sight of his father playing dominoes with Mary Burns: “It
is too funny to see Father and Aunt Mary gravely sitting down to play that
imbecile game.”6 He also saw his father’s vanity, noting how after one good
deed he was “simply too pleased with himself.”7 Jack also spied Pierpont’s inner
pain, his secret well of loneliness: “He is very well and jolly by bits but
sometimes I see he feels as lonely as I do and he looks as glum as if he hadn’t a
friend in the world.”8 Considering that Jack was also cheering up his mother—a
partially deaf, sickly woman abandoned by Pierpont for months at a time—one
finds admirable his capacity for evenhanded empathy and tender solicitude
toward both parents.
Jack’s fatalistic acceptance of the London years was eased somewhat by a
show of generosity from Pierpont. When Jack arrived in 1898, his father gave
him and his wife, Jessie, the use of 13 Princes Gate. Pierpont added 14 Princes
Gate to the property and joined the two townhouses. The original house now had
the magnificence of a great museum and was resplendent with oils by Velázquez,
Rubens, Rembrandt, and Turner—export duties kept Pierpont from taking the
collection to America. Jack also used Dover House, Junius’s country estate at
Roe-hampton, with its jersey cattle and old-fashioned dairy. Ecstatic at this
fatherly attention, Jack told his mother, “He has been dear to us ever since we
landed, most thoughtful of everything and immensely interested in Jessie’s social
career! I know he has much enjoyed our being in the house, for it must have
been very lonely for him with no one there and we have not hampered him at all,
or bothered him with responsibilities.”9 In 1901, Pierpont gave Jack a Christmas
gift—an amount of money so large that he bought a portrait by Sir Joshua
Reynolds with just part of it.
Yet Jack and his family found life amid such splendor a shade overwhelming.
Every evening—whether Pierpont was in Europe or not—the domestic staff
would place periodicals and warm milk beside the master’s bed and adjust his
reading lamp. And with the townhouse full of so many fragile masterpieces, the
housekeeper just didn’t dust on days when she felt jittery. Jessie took pride that
nothing was broken, but the Morgan children, who now numbered two boys and
two girls, found the need for self-control in their play stifling. Later the children
recalled family prayers, reading Thackeray and Trollope, strolling in Hyde Park
—everything but fun at Princes Gate.
In 1901, Jack rented Aldenham Abbey, a three-hundred-acre country estate in
Hertfordshire stocked with pheasant and Southdown sheep said to rival the
king’s in quality. Jack had a British gentleman’s taste for solid country comforts.
After buying the abbey in 1910, he restored its original name, Wall Hall.
Landscaped by Humphrey Repton, the estate included a turreted house with fake
ruins, a conservatory full of tropical plants, and a library that resembled a
college chapel. In the Anglophile Morgan world, Pierpont’s Dover House staff
would meet Jack’s Wall Hall crew for cricket matches. The Morgans
counterbalanced this Britishness with American touches—for instance, by
shipping New York State pippin apples to the London partners.
For Jack, the London years were passed in a gilded cage. He had many friends
from merchant-banking families and worked out at Sandow’s gym with Eric
Hambro. As neighbors there were Earl Grey and Florence Nightingale; for
occasional dinner companions, Rudyard Kipling, Henry James, Sir James Barrie,
and Mark Twain. Most of all, he had Jessie, a beautiful round-faced woman with
pale golden hair, a fair complexion, and smoky blue eyes. Although she had
gone to England grudgingly, its society soon reminded her of Boston’s, and she
became a confirmed Anglophile. She hoped that one of her two sons—Junius
Spencer, Jr., born in 1892, or Henry Sturgis, born in London in 1900—would
marry an American and the other a British woman; they both ended up marrying
Americans.
Jessie Morgan didn’t believe in an outside education for girls, and her
daughters, Jane and Frances, were tutored at Wall Hall; they never set foot in a
formal schoolroom. Jack held that a university education reduced a young
woman’s femininity, so college was also out of the question. The girls weren’t
allowed to talk to strangers on steamers or in public places and later saw their
upbringing as a suffocating round of social duties.
Jessie and Jack Morgan’s marriage was so all-encompassing and so absorbing
as to exclude their own children at times. Jessie would not only rule Jack’s
estates with crisp, managerial efficiency, but she would guide her husband,
advise him, and support him emotionally. Having watched the chill descend
upon his parents’ marriage and been conditioned by a confessional intimacy with
his mother, Jack established a marriage that would be the exact opposite of his
father’s; philandering, for instance, was one Morgan tradition he would not
perpetuate.
Jack’s London stay had immense advantages for the House of Morgan.
England would be Jack’s second home, and he grew as tearfully patriotic as any
British subject. In 1900, after watching Queen Victoria ride by, he said, “That
wonderful little old woman in black and sables with the big spectacles means so
much to so many—she represents in a current form so much of the past that it is
very thrilling to see her driving through the crowd.”10 During the Boer War, he
stood in a cheering throng before the Mansion House after Ladysmith, under
siege by the Boers for four months, had been relieved by British troops. Amid a
fanfare of silver trumpets, he heard the new King Edward VII proclaimed at
Saint James’s Palace. He always loved British pageantry.
Jack and Jessie were received into social circles that were closed to most
American industrialists of the era. On February 21, 1898, Jack trooped along in
sword and cocked hat as Jessie was presented in the throne room of Buckingham
Palace. Bedecked in glittering jewels and black robes, Queen Victoria presided
in solemn state while Jessie came forward in diamond tiara and obligatory
ostrich feathers—the London Daily Mail later gushed in describing her beauty
and her white satin train trimmed with blue velvet and pink roses. The Morgans
also befriended the vivacious Lady Sybil Smith and her husband, Vivian Hugh
Smith. Lady Sibyl took them to Windsor Castle to meet her mother, Lady
Antrim, a lady-in-waiting, who gave them a private showing of the queen’s
Holbein and Leonardo drawings. Almost without realizing it, Jack was forging
connections that would provide the Morgans with a unique entrée into the
society of British nobility and politicians.
As a microcosm of the Anglo-American alliance, the House of Morgan would
faithfully reflect its internal power shifts. If the New York office basked in
London’s glory after the Civil War, the situation was reversed in the new century,
with J. S. Morgan and Company participating in creasingly in issues that
originated in New York. Much of the London capital came from Pierpont, who
by the early 1900s was pocketing anywhere from one half to three-quarters of
the annual profits booked at 22 Old Broad Street. The London house reflected
some of Pierpont’s rambunctious spirit. Pierpont’s first biographer, Carl Hovey,
wrote, “Inside the office there is always a marked amount of bustle and
confusion, contrasting with the sedate atmosphere of the typical London
institutions surrounding it.”11 Pierpont was just egalitarian enough to stop the
practice of clerks bowing in his presence.
Although the Morgans were the darlings of the British establishment, the
relationship would always be fraught with tension—less a love affair than a
tense jockeying for power. The British could never figure out whether Pierpont
and Company were allies or the first wave of a barbarian horde. Wall Street was
gaining on the City in the fight for financial supremacy, with the Morgans
overtaking the Barings and Rothschilds. “In London, the resuscitated Barings are
the only people nearly in the same rank with us,” said Sir Clinton Dawkins, a
new partner of f. S. Morgan and Company, in 1901. “In the US they are nowhere
now, a mere cipher, and the US is going to dominate in most ways.”12 To combat
the Yankee upstarts, Barings and Rothschilds, the great nineteenth-century rivals,
became less antagonistic toward each other.
During the Boer War, the British government, its gold depleted, turned to
Rothschilds in London and Morgans in New York to raise Exchequer bonds.
When Pierpont initially balked, the British treasury brought in Barings as well,
adding to his displeasure. Sir Clinton Dawkins called the chancellor, HicksBeach, “notoriously stupid and most unbusinesslike.”13 The Boer War financing
of 1900 had disquieting effects in the City. J. S. Morgan’s new office manager,
Edward C. Grenfell, noted dismay in London when half of the issue was
scheduled for New York. Where Junius had accommodated the Rothschilds,
Pierpont defied them, secretly demanding a higher commission on the issue—
blackmail to which Britain reluctantly acceded. On the 1902 issue, the
Rothschilds unsuccessfully tried to freeze Morgan from the syndicate. From then
on, Grenfell, with grim triumph, would note in his journal the mounting
ascendancy of the House of Morgan over the House of Rothschild.
With the 1901 creation of U.S. Steel, British financiers were unnerved by
Pierpont’s daring. The New York Times said they were “appalled by the
magnitude of the American Steel combination,” and the London Chronicle
termed the trust “little less than a menace to the commerce of the civilized
world.”14 Among other things, formation of the trust heralded an export boom of
U.S. products to Europe, which would sharpen commercial rivalry between the
two.
Around this time, too, Pierpont took a controversial interest in proposals to
electrify underground and surface rail lines in London. New tube lines were
being built as inner-city congestion required new building in London’s outskirts.
Pierpont competed to finance an underground line running from Hammersmith
through Piccadilly, and into the City. By taking over tube financing, Pierpont
also hoped to generate business for two companies in which he had a stake—
British Thomson-Houston and Siemens Brothers. Eventually he lost the
underground financing to a syndicate headed by Chicago tycoon Charles Tyson
Yerkes, the Traction King, best known as the model for Theodore Dreiser’s
ruthless Frank Cowperwood, protagonist of The Financier, The Titan, and The
Stoic. Despite his rare loss, Pierpont’s involvement kindled fears that he would
steamroller the English economy, and the London County Council warned that
the metropolis was being handed over to the two Americans.
There was now enormous British ambivalence toward Pierpont. On the streets
of London, peddlers sold penny sheets entitled “License to Stay on the Earth”
and signed “J. Pierpont Morgan.”15 A 1901 cartoon in the New York World
showed Pierpont asking John Bull, the personified Englishman, “What else have
you for sale?”16 Yet however much the British were distressed by Pierpont’s
bravado, they relied upon him in American financial matters. In 1901, to
safeguard their American investments, London financiers insured his life at
Lloyd’s for $2 million, placing him, as Jack said, “in the same category with
Queen Victoria and other rulers on this side of the Atlantic.”17
No Morgan move could have aroused more primordial British fears than the
one Pierpont made in 1902—the formation of a shipping trust to monopolize the
North Atlantic. This was a natural extension of America’s new export
orientation. Soon after he had formed U.S. Steel, Pierpont was asked by a
shipping executive whether it was possible to put North Atlantic steamships
under common ownership. “It ought to be,” he replied.18 The shipping scene was
then reminiscent of an earlier railroad era—too many ships and destructive rate
wars. The Germans threatened British naval superiority, while Americans
believed they should profit more from the immigrant traffic, as well as the new
vogue among rich Americans for making luxurious transatlantic crossings.
Nakedly asserting American interests, Pierpont assembled a plan for an
American-owned shipping trust that would transpose his “community of
interest” principle—cooperation among competitors in a given industry—to a
global plane. He created an Anglo-American fleet of over 120 steamships—the
world’s largest under private ownership, dwarfing even the French merchant
marine. From a political standpoint, his critical conquests were the Belfast
shipyard of Harland and Wolff and the White Star line. In the new trust, Lord
Pirrie of Harland and Wolff saw a captive market for his ships, but J. Bruce
Ismay, whose father had co-founded White Star, balked at the deal. Pierpont
offered White Star shareholders such a rich premium—ten times over the high
1900 earnings—that Ismay not only stayed on as White Star chairman but was
coaxed by Pierpont into becoming president of the trust itself, to be called the
International Mercantile Marine. Through the White Star purchase and his hiring
of Ismay, Pierpont would become ensnared in the Titanic catastrophe ten years
later.
It was imperative that Pierpont bring the Germans, newly dominant in the
North Atlantic, into his trust. Their jumbo transatlantic liners—multitiered
wonders of wedding cake extravagance—were setting speed records for Atlantic
crossings. An important architect of the shipping trust was Albert Ballin, whose
Hamburg-Amerika Steamship Line, with hundreds of vessels, was the world’s
largest shipping company. In a secret 1901 report, Ballin sketched out the scope
of Morgan’s ambitions:
It is no secret that Morgan is pursuing his far-reaching plans as the head of a
syndicate which comprises a number of the most important and the most
enterprising business men in the United States and that railway interests are
particularly well represented in it. Morgan himself, during his stay in London a
few months ago, stated to some British shipping men that, according to his
estimates, nearly 70 percent of the goods which are shipped to Europe from the
North Atlantic ports are carried to the latter by the railroads on Through Bills of
Lading, and that their further transport is entrusted to foreign shipping
companies. He and his friends, Morgan added, did not see any reason why the
railroad companies should leave it to foreign-owned companies to carry those
American goods across the Atlantic. It would be much more logical to bring
about an amalgamation of the American railroad and shipping interests for the
purpose of securing the whole profits for American capital.19
In late 1901, Morgan struck a deal with Ballin for carving up the North
Atlantic traffic: the Morgan syndicate wouldn’t inaugurate service to German
harbors without express permission from the Germans, while they, in turn,
vowed not to expand their service to Britain or Belgium. The partners in the
shipping trust would also pool profits and jointly acquire the Holland-America
Line.
After meeting with Morgan in London, Ballin, the court Jew of his day, went
to Kaiser Wilhelm’s Berlin hunting lodge and briefed him on the pact. At first,
the kaiser feared American financial trickery. But Ballin pointed out that while
the British companies were being swallowed whole, the Germans would remain
independent partners. Impressed, the kaiser sat down on his bed and read the
agreement, making changes and insisting on the inclusion of North German
Lloyd in the cartel. Later, when the kaiser came aboard Corsair III at Kiel,
Pierpont strolled the deck with him. But in inviting the kaiser to sit down, he
committed a serious faux pas; Wilhelm, however, accepted the offer from the
royal Morgan.
As news of the German agreement leaked out, the public was shocked that
consolidation had reared its head on a global scale. In an editorial entitled
“Incredible,” the New York Times said, “If dispatches from Paris should tell us
that Mr. Morgan had . . . cabled orders to his home office to take out all the
telephones, discharging the stenographers and typewriters and smash the ticker,
no man, woman, or child in New York would believe the yarn. Neither will
intelligent persons accept as true the story about the terms of the agreement with
the German lines.”20 The Times saw this restraint of competition as outmoded
and inefficient—a line of reasoning now gaining new adherents as revulsion
from the trust kings increased.
The British were especially edgy about Pierpont’s shipping cartel. They feared
that International Mercantile Marine ships might exclusively transport to Europe
those goods that originated in the American interior and traveled on Morgan
railroads to East Coast ports. Morgan partner George Perkins confirmed this
when he exulted that the shipping trust would “practically result in stretching our
railroad terminals across the Atlantic.”21 It seemed as if Pierpont Morgan were
spinning a seamless web around the world.
Pierpont had to contend with a single holdout, Britain’s Cunard Line, whose
exclusion Ballin thought might wreck the trust. (There may have been some
personal pique here: once detained by a strike of Cunard workers at Liverpool,
Pierpont had sworn, on the spot, never to use the line again.) Now, with nearpanic in British shipping circles and a popular clamor for Parliament to “save”
the seas for Britain, a cabinet committee pressed Cunard not to sell. The British
admiralty wanted transatlantic liners available as warships in an emergency and
feared having Cunard in foreign hands. To woo the line, the British government
granted it lavish subsidies to build two new ships, the Mauretania and the
Lusitania, which would be the world’s biggest steamships. In exchange, Cunard
agreed to stay in British hands and keep its fleet at the government’s disposal.
In crafting a trust, Pierpont had never before had to contend with foreign
governments. But as finance became increasingly international and affected
sovereign interests, it took on a more political coloring. To temper British fears,
Pierpont lobbied Colonial Secretary Joseph Chamberlain, a vocal critic, and
resorted to a ruse familiar to modern multinationals: he camouflaged American
ownership, first with the trust’s very name, the International Mercantile Marine.
Pierpont also agreed to man his British ships with British crews, fill their boards
with British directors, and have them fly the Union Jack. Finally, his British
ships would be in the reserves of the British navy and could be conscripted in
case of war. Yet the IMM’s five-man voting trust would have an American
majority, with Pierpont and his partner Charles Steele joined by P. A. B.
Widener, along with Ismay and Lord Pirrie.
The IMM would become a famous Pierpont Morgan flop. When shipping
traffic slackened after the Boer War, the Morgan combine and Cunard exhausted
each other in debilitating rate wars. From its inception in April 1902, the Morgan
syndicate struggled to unload the IMM’s unwanted securities. The stock had so
much water—that is, inflated value—that it couldn’t get a New York Stock
Exchange listing. In 1906, the underwriters still held nearly 80 percent of the
shares. As the Wall Street Journal concluded in a postmortem on Pierpont’s
shipping trust, “The ocean was too big for the old man.”22
The British revulsion toward Pierpont probably changed the complexion of his
London partnership, J. S. Morgan and Company. Not only had the bulk of its
capital been his, but its mostly American partners had largely been recruited
from among family members. In the new century, more partners would be
British, and the choices more political, as Pierpont spent lavishly to build up the
London house. In 1900, he signed up as a partner Sir Clinton E. Dawkins, a
distinguished civil servant who had just completed a tour of duty in Egypt and
was about to become a finance minister in India. The press saw fresh plans to
expand the Morgan domain into Asia.
It was dissatisfaction with Dawkins, apparently, that led Pierpont into merger
talks with Barings in 1904. He also feared his new rivals on Wall Street. Lord
Revelstoke of Barings, in recalling his meeting with Pierpont on the subject,
wrote, “He inveighed bitterly against the growing power of the Jews and of the
Rockefeller crowd, and said more than once that our firm and his were the only
two composed of white men in New York.”23 The two firms had long identified
with each other as the leading Protestant houses in their respective cities.
The proposed merger centered on a plan for the House of Baring to handle the
London side, the House of Morgan the New York side; J. S. Morgan and
Company would disappear. The talks foundered for two reasons, according to
Lord Revelstoke: Pierpont was afraid of disappointing Dawkins by merging the
London house; and with Jack Morgan spending so much time in London, his
position in the merged firm would be a ticklish affair. “I expect there is little
sympathy and less confidence between father and son,” said Revelstoke, who
was also afraid of being smothered by Pierpont.24 Soon after these talks
collapsed in 1905, Dawkins had a heart attack and died. Jack was then entrusted
with the sensitive assignment of recruiting well-connected British partners for
the firm of J. S. Morgan and Company. Now the Morgans would buy some
expensive British bloodlines.
In 1904, Edward Grenfell was elevated to partner; he became a Bank of
England director a year later. A cool, dapper young bachelor who wore smart
clothes and had a sharp tongue, Grenfell was snobbish and conservative and
possessed a penetrating intellect. He also had a taste for practical jokes.
Educated at Harrow and Trinity College, Cambridge, he had eminent ancestors,
both his father and grandfather having been directors of the Bank of England and
members of Parliament. Even as a young man, he peered at the world
unsentimentally and spied out the fraudulent and hypocritical in people. Grenfell
would become the London firm’s political fixer and ace diplomat, its main
contact with the British Treasury and the Bank of England.
In 1905, Grenfell brought in his cousin and Jack Morgan’s friend, Vivian
Hugh Smith, then working in a family business that managed wharves. A tall,
handsome redhead and a charming raconteur, he had gone to Eton and Trinity
Hall, Cambridge. He more than Grenfell was in Pierpont’s mold. He was a
business go-getter, with his hand in many deals. He invested in Caucasian copper
and African goldfields and in other Rhodesian enterprises. Smith’s father had
been a Bank of England governor, and he was a member of the most prolific
banking family England has produced, the so-called City Smiths, descended
from a seventeenth-century Nottingham banker. (Grenfell wasn’t a Smith; he and
Vivian were related through their mothers.) Charting the power of this
prodigious brood in 1959, Anthony Sampson estimated that seventeen Smith
descendants in the City controlled eighty-seven directorships in seventy-five
companies and were chairmen of six companies. The Martin Smiths would
intermarry with the Hambros, strengthening that banking alliance. Vivian Smith
married the tall, slender, flaxen-haired Lady Sybil, the mischievous, highspirited only daughter of the sixth earl of Antrim, who owned Glenarm Castle
and several square miles of land in Ulster and whose mother had been a lady-inwaiting to Queen Victoria. Gradually, then, the London bank shed its character
as an American colony in the City. When Jack returned to New York in 1905,
Grenfell and Smith were in charge. When the firm was restyled Morgan,
Grenfell in 1910, it was the first time it had ever carried a British name. The
Morgans had built their Trojan horse well.
Theodore Roosevelt’s presidency, Pierpont Morgan received his most
pronounced comeuppance for his role in the American scene. He was now so
grand and cloud-wreathed that only a president could chop him down to mortal
DURING
scale. The public revulsion from him was easy to explain. Wall Street had
flourished with the trusts: many were headquartered in New York and enjoyed
closer relations with Wall Street bankers than with the companies from which
they were compounded. Teddy Roosevelt wanted to correct the imbalance
between government and corporate power, and in so doing he inevitably collided
with Pierpont Morgan.
Although he had created great industrial combines, Pierpont couldn’t allow
commensurate power to accrue to labor and government. Despite his reverence
for the past, patent in the religious and Renaissance art he collected, he was a
radical force, unsettling to small-town America, with its agrarian traditions and
faith in its own innocence. However much businessmen might respect him, he
was now an ogre in the popular press. One Broadway hit show depicted devils
blowing across a fiery seat as they sang in unison, “This seat’s reserved for
Morgan, the great financial Gorgon.”25
Soon after President McKinley was shot, the House of Morgan tested his
successor. Pierpont’s new lieutenant, the smooth, insinuating George W. Perkins,
cabled the new president, “The country’s only consolation at this time is that it
has an honest, fearless, loyal American to assume its world wide burdens.26 A
few weeks later, Perkins and Robert Bacon, a former classmate of TR’s at
Harvard, visited the White House to urge caution and scout out Roosevelt’s
intentions. The president said he wanted reform and afterward described Perkins
and Bacon “arguing like attorneys for a bad case, and at the bottom of their
hearts each would know this if . . . he were not the representative of so strong
and dominant a character as Pierpont Morgan.”27
As much a showman as Pierpont, TR would endlessly manipulate the Morgan
symbolism. With the public appalled by the Northern Pacific corner, Roosevelt
saw the political wisdom of filing an antitrust suit against the Northern Securities
Company, whose formation had marked the Morgan-Harriman truce. Attorney
General Philander C. Knox announced the suit after the stock market’s close on
February 19, 1902. The news caught Morgan by surprise at a dinner. Clearly, this
White House wouldn’t automatically succumb to Morgan pressure. The
subsequent confrontations between TR and Morgan showed the tycoon in all his
sublime arrogance. The two men shared membership in New York’s aristocracy;
Pierpont and TR’s father were both founders of the American Museum of
Natural History. This common background perhaps gave their feud a special
rancor—a pattern that would repeat itself with Jack and another notable “class
traitor,” Franklin Roosevelt.
At a White House meeting that included Attorney General Knox, Morgan
expressed indignation that he hadn’t received advance word of the Northern
Securities suit. In what history has engraved as the ultimate hauteur, he
suggested to Roosevelt that Knox and his lawyers meet privately. “If we have
done anything wrong,” said Pierpont, “send your man to my man and they can
fix it up.”28 Knox said testily that they didn’t want to fix the merger, but stop it.
Worried about U.S. Steel, his favorite stepchild, Morgan asked Roosevelt if he
planned to “attack my other interests.” Not “unless we find out . . . they have
done something we regard as wrong,” Roosevelt replied.29
In Roosevelt’s reaction to the meeting, there was the keen relish and cynicism
of the well-bred rebel. He told Knox how Morgan “could not help regarding me
as a big rival operator, who either intended to ruin all his interests or else could
be induced to come to an agreement to ruin none.”30 Back at 23 Wall, Pierpont
dashed off an angry letter to the president, but cooler associates dissuaded him
from sending it. In 1903, a court in Saint Paul, Minnesota, backed the
government in dissolving the Northern Securities Company and the Supreme
Court narrowly upheld the decision a year later. The Sherman Antitrust Act,
moribund under McKinley, suddenly took on new life with TR.
Although the Roosevelt-Morgan relationship is sometimes caricatured as that
of trust buster versus trust king, it was far more complex than that. The public
wrangling obscured deeper ideological affinities, as first demonstrated in the
anthracite miners strike of May 1902. The principal coal companies were owned
by railroads, such as the Reading, Lehigh Valley, Erie, and others close to the
House of Morgan. They wanted to avenge a 10-percent wage increase granted
the miners in 1900—a deal that Pierpont had helped to broker—and reacted to
the strikers with feudal ferocity. By the fall of 1902, schools were shut in New
York for lack of coal, and the Republicans feared retribution in the elections. On
October 11, 1902, Elihu Root, the secretary of war, met with Pierpont aboard
Corsair III in the Hudson River. Roosevelt was ready to run the mines with
soldiers and wanted Morgan’s support for an arbitration committee. TR was
taking an enlightened stand for a president—strikebreaking had been the more
typical presidential response.
The approach appealed to Morgan, who liked order and negotiation. He and
Root went straight to the Union Club to meet with some railroad presidents.
Paternalistic in his own bank, he was more conciliatory toward the miners than
the railroad presidents were. At a White House meeting on October 3, the
railroad men angrily abused (ohn Mitchell, the young president of the United
Mine Workers of America, who reacted with commendable dignity. Two days
later, Roosevelt sent Robert Bacon a letter designed to enlist Pierpont’s further
help. The president said of Mitchell, “He made no threats and resorted to no
abuse. The proposition he made seemed to me eminently fair. The operators
refused even to consider it; used insolent and abusive language about him, and in
at least 2 cases assumed an attitude toward me which was one of insolence.”31
While sympathetic to Roosevelt’s plea, Morgan lacked the total power over the
railroad men popularly attributed to him, and Roosevelt complained to Henry
Cabot Lodge that Morgan hadn’t been able to “do much with those woodenheaded gentry.”32
The crisis climaxed on October 15, 1902, when Perkins and Bacon visited the
White House and stayed up close to midnight with Roosevelt, trying to find a
way out of the impasse. Roosevelt again saw the two Morgan partners as
melodramatic, even slightly ridiculous. As the night wore on, he said, they “grew
more and more hysterical, and not merely admitted but insisted that failure to
agree would result in violence and possible social war.”33 Roosevelt finally hit
upon a way that would allow the operators to save face: they would place the
labor representative on the board in a seat reserved for an “eminent sociologist.”
In the end, the arbitration board granted the miners a 10-percent wage increase
but no union recognition. Roosevelt glowingly wrote Morgan, “If it had not been
for your going in the matter, I do not see how the strike could have been settled
at this time, and the consequences that might have followed . . . are . . . very
dreadful to contemplate.”34
Even on the trust issue, Roosevelt and Morgan were far from antithetical.
Roosevelt saw trusts as natural, organic outgrowths of economic development.
Stopping them, he said, was like trying to dam the Mississippi River. Both TR
and Morgan disliked the rugged, individualistic economy of the nineteenth
century and favored big business; they wanted to promote U. S. entry into world
markets. But whereas Roosevelt thought economic giantism warranted an
equivalent growth in government regulation, Morgan saw no need for
countervailing powers. A Victorian gentleman banker at bottom, Pierpont saw
trust, honor, and self-regulation among businessmen as providing the needed
checks and balances.
That Roosevelt and Morgan were secret blood brothers can be seen in the
strange odyssey of Morgan partner George W. Perkins, who ended up a
lieutenant to both. He was a handsome, highly imaginative man, with roguish,
heavy-lidded gambler’s eyes and a sinister baby face behind a handlebar
mustache. His father had founded a missionary slum school in Chicago, and
George grew up on the grounds of a reform school that his father ran. Before he
joined the bank in 1901, he was already an empire-building executive at New
York Life Insurance. A voluble, glad-handing deal maker, he was an experiment
on Pierpont’s part—more chief than Indian—and showed Morgan’s knack for
picking bright people. He had come to the Corner to solicit a donation for
preserving the Palisades, the high cliffs on the western bank of the Hudson.
Pierpont gave $25,000 of a requested $125,000, then said to Perkins as he was
leaving, “I will give you the whole $125,000 if you will do something for me.”
When Perkins asked what, Pierpont motioned toward the partners’ area. “Take
that desk over there.”35
Morgan gave Perkins a day to decide. President McKinley warned him against
the killing regime of a Morgan partner, but the cocky Perkins accepted. Things
were stormy from the start. J. P. Morgan and Company employed men for
secretarial positions, and Perkins wanted to bring his female secretary from New
York Life. “I will not have a damned woman in the place,” Pierpont roared, and
poor Mary Kihm was stashed away in a bank building around the corner.36 Later,
Perkins moved her over to 23 Wall, but with the proviso that she remain upstairs
and never appear on the banking floor.
Flamboyant and outgoing, George Perkins stands out among early partners
because he wrote about trusts even as he created them. He challenged the mores
of tight-lipped bankers of the Baronial Age. In August 1902, he pulled off a deal
that put him in Pierpont’s league. For a $3-million fee, he merged the
McCormick Harvesting Machine Company and the Deering Harvester Company
plus three smaller companies into International Harvester. This new trust had an
85-percent share of the farm-equipment market. Perkins chose the name
International Harvester because he foresaw the rise of global corporations and
hoped the new trust would “comply with the laws of various countries and be at
home everywhere.”37 Because of the popularity of McCormick Harvesting
among farmers, International Harvester was spared the trustbusting fervor that
was directed against U.S. Steel.
As the Deering and McCormick families vied to control International
Harvester, Perkins came up with an ingenious solution: the House of Morgan
would control it. Perkins boasted to Pierpont, “The new company is to be
organized by us; its name chosen by us; the state in which it shall be
incorporated is left to us, the Board of Directors, the Officers, and the whole
outfit left to us—nobody has any right to question in any way any choice we
make.”38 Cyrus Hall McCormick, Jr., later called Perkins the most brilliant
negotiator he had ever known.39 When International Harvester was listed on the
Stock Exchange, Perkins proudly sent its first report to Roosevelt, writing that
“so far as I know, this is the first instance on record that a corporation, on
offering its securities to the public, has given to the public complete information
as to its affairs.”40
Perkins’s advent came at an auspicious time for Pierpont Morgan. The trusts
had thrust Wall Street into the national spotlight and brought about growing
federal scrutiny of high finance. Pierpont was still mired in a nineteenth-century
businessman’s contempt for government—when a fellow vestryman at Saint
George’s Church, William Jay Schieffelin, the son-in-law of Dr. Markoe, came
one day to talk to him about a civil service reform movement, Pierpont
thundered, “What do I care about civil service reform!”41 To worsen matters,
Pierpont had a ferocious attitude toward the press, rarely granted interviews,
violently refused to be photographed, and warned employees to withhold
information from reporters.
The slick, cool George Perkins, with his natty gray alpaca suits and
ingratiating manner, enjoyed the smoke-filled rooms. He was the House of
Morgan’s first real power broker and high-level lobbyist. His later antagonist in
the struggle for Theodore Roosevelt’s soul, the Kansas Progressive William
Allen White, has left some marvelous impressions of Perkins as a silver-tongued
devil. White became fascinated with Perkins after Senator Albert J. Beveridge
urged White to go into the Senate and said that Perkins, who liked him, could
arrange it. White observed that Perkins “made quick decisions, spoke in a soft
voice, smiled ingratiatingly, easily.” He wrote, “I used to watch him fishing for
men with a certain pride in his skill, which I greatly admired.” He also declared
that “he exuded pleasantly the odor of great power that came from the Morgan
connection.” At the Bull Moose National Convention in 1912, White saw a
“smiling, simpering” Perkins, “spick-n-span, oiled and curled like an Assyrian
bull, and a young one, trim and virile.”42
From his days at New York Life, Perkins would always carry a faint spice of
scandal and a reputation as a master manipulator. In 1905, the New York State
legislature held sensational hearings regarding the life-insurance industry. They
were named after Senator William Armstrong and they made the reputation of
chief counsel Charles Evans Hughes, later secretary of state and chief justice of
the Supreme Court. The committee showed how rapacious insurance executives
poured money into trust companies in which they held stock and squandered
policy-holders’ money on fancy balls. There were stories about a racy house of
mirth in Albany and other devices used by New York Life and other insurance
companies to sway legislators. Perkins had been in too high a position at New
York Life to get off scot-free. Against Pierpont’s advice, he had retained his New
York Life position and Hughes pummeled him with conflict-of-interest issues.
Perkins was charged with illegal campaign contributions and falsifying company
records related to the sale of railroad securities. Although the indictments were
later thrown out, he had to resign from New York Life.
Where Pierpont’s theorizing was largely nonexistent, Perkins’s was
sophisticated. He gave speeches and published pamphlets on every conceivable
subject. He was an oddity at the world’s most cryptic bank. He preached a gospel
of industrial cooperation, contending that small-scale business depressed wages
and retarded technological advance. Not Wall Street, he said, but steam engines
and telephones produced trusts. “What is the difference,” he proclaimed,
“between the U.S. Steel Corporation, as it was organized by Mr. Morgan, and a
Department of Steel as it might be organized by the Government?”43 He drew a
parallel Pierpont wouldn’t admit to—that trusts, with their centralized
production and distribution, were a form of private socialism. And unlike
Pierpont, he saw that they had acquired a public character, and he favored
government licensing of interstate companies and extended worker benefits,
including profit sharing, social insurance, and old-age pensions. This, he
boasted, would be “socialism of the highest, best, and most ideal sort.”44
Although Teddy Roosevelt sometimes wondered whether Perkins simply
rationalized a selfish Morgan agenda, there was a striking likeness between their
views.
That a Morgan partner should advocate socialism is not so startling. After all,
Pierpont, starting with his railway associations of the late 1880s, espoused
industrial cooperation instead of competition. He liked his capitalism neat, tidy,
and under bankers’ control. The House of Morgan was banker to established
enterprises—the great industrial planning systems that favored stability over
innovation, predictability over experimentation, and were threatened by upstart
companies; so the bank had a heavy stake in the status quo. Perkins wasn’t the
only one in the Morgan camp to applaud moves toward a planned, integrated
economy. Later on, Judge Elbert Gary of U.S. Steel, who held private dinners to
fix prices in the steel industry, testified: “I would be very glad if we had some
place where we could go, to a responsible governmental authority, and say to
them, ’Here are our facts and figures, here is our property, here our cost of
production; now you tell us what we have the right to do and what prices we
have the right to charge.”45
As we shall see, the mortal attacks on the House of Morgan came not from
socialists but from such trustbusters as Louis D. Brandeis, Felix Frankfurter, and
William O. Douglas, who favored small economic units and sharp competition.
This tradition would lambaste the Morgan Money Trust as the biggest and most
dangerous trust of all. Because the House of Morgan preached socialism for the
rich, it always had a partial affinity for those who preached it for the poor.
Yet another dimension of the Pierpont Morgan-Teddy Roosevelt relationship
may be seen in the Panama Canal affair. Even as TR fulminated against
excessive financial power at home, he gratefully exploited it abroad. In 1902,
Congress authorized Roosevelt to pay $40 million to France to buy its
uncompleted assets in the Isthmus of Panama for the construction of a canal.
Two years later, Pierpont carried out the financing for this largest real estate
transaction in history. He traveled to France to oversee the shipment of gold
bullion and paid the rest in foreign exchange to the Banque de France. After
receiving payment from the United States, the new state of Panama—which TR
helped to pry loose from Colombia—named J. P. Morgan and Company its fiscal
agent on Wall Street, with exclusive rights to receive its U.S. government
payments. The House of Morgan also handled Panama’s single biggest
investment: $6 million of first mortgages on New York City real estate. So
integral was Pierpont in the whole shady Panama Canal affair that one
biographer has dubbed him “Roosevelt’s bagman in the taking of the Panama
Canal.”46
Thus, in the sparring between Roosevelt and Morgan there was always a
certain amount of shadow play, a pretense of greater animosity than actually
existed. In the 1904 campaign, the Morgan bank gave $ 150,000 toward
Roosevelt’s reelection. In return, Pierpont was sternly lectured by TR at a 1907
dinner of the Gridiron Club, the president wagging his finger at Morgan and
Standard Oil’s Henry Rogers and thundering for business reform. “And if you
don’t let us do this,” he insisted, “those who will come after us will rise and
bring you to ruin.”47 When TR enunciated the famous phrase about “malefactors
of great wealth,” reporters thought he glanced in Morgan’s direction.48
Nevertheless, some of the most eloquent encomiums of Pierpont came from
TR himself, who “was struck by his very great power and his truthfulness. Any
kind of meanness and smallness were alike wholly alien to his nature.”49 Morgan
was less forgiving. When Roosevelt went on an African safari, Pierpont declared
that he hoped the first lion he met would do its duty.
by trustbusters, Pierpont turned with relief to other matters in his
later years. By the 1900s, in his early sixties, he was often an absentee boss.
Cabling instructions to Wall Street two or three times daily from vacation haunts,
he never loosened his grip. He was a restless, frustrated man. He didn’t gloat
over the stupendous sums he earned, and one doesn’t picture him counting up his
BADGERED
net worth in the dead of night. He never mistook business for the whole of life.
His real passions and temptations were women, art, and religion.
Pierpont tried to suppress press gossip about his escapades, but the Morgan
estrangement was no secret. Husband and wife had little in common, and Fanny
remained aloof from the social rigors required of a famous man’s wife. In a 1902
photograph, she still looks tall, refined, and handsome, with her wavy hair swept
up. Yet she was frail and sickly and sometimes lacked the strength to travel. By
the early 1900s, she had become rather deaf and used an enormous ear trumpet;
she was a semi-invalid and ate alone upstairs when the family gathered for
Sunday breakfast.
Despite the tensions between Pierpont and Fanny, the Morgans were familyoriented. In 1904, Pierpont bought Jack a big Victorian brown-stone at the corner
of Madison Avenue and Thirty-seventh Street, almost a twin of his own.
Unexpectedly light and spacious inside, it had forty-five rooms, twenty-two
fireplaces, and a dozen bathrooms. By tearing down an intervening house, Jack
and his father lived as next-door neighbors, with a common garden in between,
from 1905 until Pierpont’s death, in 1913.
Jack continued to manage emotional acrobatics, propping up his mother’s
failing spirits while retaining his father’s love. In later years, he functioned as a
post office, informing his mother of Pierpont’s movements abroad and reporting
to his father on his mother’s whereabouts. It was formal and awkward, yet
Pierpont and Fanny never turned their children against one other. A
thoroughgoing Victorian, Pierpont would inquire respectfully after Fanny and try
to minimize Jack’s discomfort.
In letters often heavy with piety, Jack preached resignation to Fanny. Life, he
argued, was simply a matter of bowing to eternal verities. Hadn’t he dealt with
his father by accepting the inevitable? In the stuffy, patriarchal Morgan world,
Fanny’s options were terribly limited. In one 1900 letter, he congratulated her for
her better health, then said, “Do keep hold of it now it’s come at last and don’t
squander your health on things which seem a necessity to you because they
would be a pleasure to others. Keep on letting people do things without you,
you’ll be better able to do things for them later on. Here endeth the sermon—and
there is no collection.”50
Fanny never achieved such holy resignation and suffered terrible anguish. In
1901, when she visited Rome, Jack wrote her a letter that poignantly stated his
conviction that she had to submit to her fate. Although Pierpont isn’t mentioned,
his ghost hovers in the air:
Your letter from Rome struck me as distinctly blue. . . . I know there are lots of
things in your circumstances which you and others would like to have differently
but one must accept the inevitable as a thing which is not in one’s own hands, as
one does a death or a great anxiety. Nothing one could ever have done and left
undone would make two and two into five—if the four is unpleasant there is a
moral and religious necessity for accepting the fact and believing in the eternal
love which lies behind the troubles.51
It seems doubtful that any woman could have wholly gratified Pierpont’s
appetites. There were two Pierponts—the proper banker and the sensualist—
yoked together under extreme pressure; Pierpont could never integrate the two.
His attitude toward women was characterized by the common double standard.
At the bank, he was stoutly opposed to women employees, and he didn’t discuss
business with women, whom he saw as inhabiting a separate realm. Once a year,
on New Year’s Day, Fanny lunched at the Corner—the only time women were
invited. At home, however, he was a different man. A female visitor to 219
Madison Avenue once teased Pierpont, saying that while he was charming at
home, she heard of the fear he inspired at work. Pierpont blushed, began to
protest, then said, “I’m afraid you are right.”52
For Pierpont, marriage required discretion, not fidelity. It was a matter of
paying homage to convention. In January 1902, Charles Schwab, now president
of U.S. Steel, motored to Monte Carlo with Baron Henri Rothschild; their
scandalous escapades at roulette made the front pages of New York papers.
Disgusted with the “wicked” Schwab, Andrew Carnegie wrote Pierpont, “Of
course he never could have fallen so low with us. His resignation would have
been called for instanter had he done so.”53 George Perkins cabled Schwab that
the incident hadn’t scandalized Pierpont and that Schwab should go ahead “and
have a bully good time.”54 When he returned to New York, Schwab defended
himself, telling Morgan he hadn’t resorted to closed doors. “That’s what doors
are for,” snapped Morgan.55 There’s no question he possessed a wide streak of
cynicism. He once told an associate, “A man always has two reasons for the
things he does—a good one and the real one.”56 A revealing comment from a
man who styled himself Wall Street’s conscience.
In matters of art, Pierpont’s standards were puritanical. As a member of the
board of the Metropolitan Opera, he was instrumental in canceling production of
Richard Strauss’s Salome. The first-night audience had found the story of the
crazed princess who wanted John the Baptist’s head too daring for its tastes.
Also, rehearsals had been held on Sunday mornings, which infuriated the local
clergy. The production was spiked. In embarrassment, another board member,
Otto Kahn, wrote to Strauss that “the responsibility for the Salome veto must be
shared by the clumsiness and the honestly felt, but in this case, totally
inappropriate religiosity of Morgan.”57
While protecting public morals, Pierpont conducted amorous escapades
aboard his yachts, in private railroad cars, and at European spas. Wall Street wits
said he collected old masters and old mistresses. “Few women could withstand
his leonine love-making,” insisted an early Pierpont biographer.58 In his larks
can be seen the familiar comedy of the older man suddenly unbuttoned—he
could be a jovial Santa Claus. In Paris, he would squire mistresses to a jeweler
on the rue de la Paix and invite them to indulge themselves. Once, in Cairo, he
tossed a handful of gold jewelry on a hotel table and cried to the ladies, “Now,
help yourselves!”59 (The party included a bishop: did he join in the merriment?)
During one Seattle outing, everyone was given a fur. A New York joke of the
early 1900s apparently referred to Pierpont’s florid face and generosity. One
chorus girl says to another, “I got a pearl out of a fresh oyster at Shankley’s.”
“That’s nothing,” replies her friend. “I got a whole diamond necklace out of an
old lobster.”60
Given Pierpont’s theatrical approach to business, it is fitting that he preferred
the company of actresses. He gravitated toward women who were free and
independent, sassy and high-spirited. Rumors had him competing with Diamond
Jim Brady for the affections of Lillian Russell. His most celebrated affair
involved the tall, voluptuous Maxine Elliott. She was a stately woman with dark
eyes, a long neck, and an imposing presence. She had a provocative tongue—
something that always seemed to attract Morgan. “Why, you men in Wall Street
are like a lot of cannibals,” she taunted him. “You devour anything that comes
along—if it is edible.”61 She made such withering comments about the design of
Corsair III—especially Pierpont’s having placed the cabins below-decks—that
he shifted the arrangements.
Maxine Elliott was the first woman to build a Broadway theater, purchasing
the needed lot two months after the 1907 panic. Scandalmongers attributed the
financing to Morgan. When he and Maxine returned from Europe aboard the
same ship in 1908—a rare lapse in Morgan discretion—reporters asked him if he
had a stake in the theater. “The only interest I have in Maxine Elliott’s Theatre is
that I’d like to get a free ticket on opening night,” he said.62 Legend claims he
shared her favors with King Edward VII, whom she met at Marienbad in 1908.
These larks, concentrated in Pierpont’s later life, were not without Falstaffian
pathos. Yet Pierpont could also be a courtly, old-fashioned lover. His last
mistress seems to have been Lady Victoria Sackville-West, the daughter of a
former British ambassador to Washington. She recorded how the portly old
banker, randy as a schoolboy, suddenly crushed her in his embrace. She wrote in
her diary in 1912, “He holds my hand with much affection and says he would
never care for me in any way I would not approve of, that he was sorry to be so
old, but I was the one woman he loved and he would never change.”63 For a
financial god, how tenderly apologetic!
Even at the end of his life, Pierpont had a craving for romance that had
probably not been satisfied since his brief marriage to Mimi Sturges fifty years
before. Some spot inside him was left untouched by the storied maneuvers on
Wall Street, some emptiness that his giant exploits couldn’t fill. Even after
Pierpont’s death, his family would track his liaisons as objets d’art he had owned
mysteriously surfaced in the collections of other families. In 1936, a German
wrote to Jack claiming to be a bastard from Pierpont’s student days at Gottingen.
Jack wasn’t sure the whole thing was a hoax until he established that the man
hadn’t been born until after his father had left the university. Yet years after his
father’s death, Jack didn’t dismiss the notion out of hand.
In spite of their number, these affairs consumed less of Pierpont’s time and
interest than his true aphrodisiac—art collecting. When Junius died, Pierpont had
a Thackeray manuscript and a few Egyptian antiquities. Then his collecting
blossomed along with his banks’ profits. At first, he concentrated on books and
manuscripts and letters of British royalty, storing them in his Madison Avenue
basement. Soon they were heaped upon chairs, and he couldn’t keep track of
them. Other works gathered dust in 23 Wall’s vaults and in a warehouse on East
Forty-second Street.
In 1900, he bought property adjoining his house, on East Thirty-sixth Street
and drafted architect Charles F. McKim to design a library for his collection.
McKim created an Italian Renaissance palace of a coldly remote and balanced
beauty. Its marble blocks were so perfectly fitted they required no binding
material—a method McKim copied, at considerable expense, from the Greeks.
When he settled into the library in 1906, Pierpont took for his office the
magnificent West Room, with its walls of crimson damask from the Chigi palace
in Rome. A door in the corner opened into the vault. Junius’s portrait hung above
the mantel. The library was nicknamed the Uptown Branch of J. P. Morgan and
Company.
To catalogue the collection, Pierpont in 1905 hired a pretty young woman
named Belle da Costa Greene. Only twenty-two, she had impressed Pierpont’s
nephew with her knowledge of rare books at Princeton’s library. She was the
product of a broken marriage—she grew up in New Jersey with her mother, who
was a music teacher—and had no college education. Dark and enchanting, with
green eyes, she had a complexion so dusky that she referred fancifully to her
“Portuguese origins,” and she was probably part black. Belle Greene had a
ferocious wit and remarkable self-confidence. She became more than Pierpont’s
librarian: she was his confidante, soul mate, and possibly mistress. She read
Dickens and the Bible to him and would even attend him at the all-night library
session during the 1907 panic.
If the financier liked saucy women, Belle Greene surpassed all rivals. When a
lumber magnate proposed to her, she cabled back “All proposals will be
considered alphabetically after my fiftieth birthday.”64 She daringly posed nude
for drawings and enjoyed a Bohemian freedom. Also the toast of the Harrimans
and the Rockefellers, she stayed at Claridge’s in London and the Ritz in Paris
when on Morgan missions. She could be a buccaneer as well; she once told an
assistant, “If a person is a worm, you step on him.”65 Even when she became
famous as the director of the Pierpont Morgan Library, she was as mysterious as
her mentor and never lectured in public or accepted any honorary awards. Like
Pierpont, she burned her letters and diaries before she died in 1950.
In Belle Greene, Pierpont’s infatuation with women and art converged. There
was some sexual element to the relationship. When she had a four-year affair
with connoisseur Bernard Berenson, she insisted that he keep it secret, so as not
to awaken Pierpont’s jealousy. She flowered in her role as doyenne of the library,
presiding in Renaissance gowns, gesturing with a green silk handkerchief, and
personally representing Pierpont at art auctions. The forty-six-year age
difference between tycoon and librarian didn’t seem to matter. “He was almost a
father to me,” she said after Pierpont died. “His never-failing sympathy, his
understanding, and his great confidence and trust in me bridged all the difference
in age, wealth, and position.”66 She would be an important figure for many
members of the Morgan family and would later appeal to Jack no less than to his
father.
Eventually Pierpont put together the largest art collection of any private
individual of his day, perhaps of any day. It had Napoleon’s watch, Leonardo da
Vinci’s notebooks, Catherine the Great’s snuff box, jewelry of the Medici family,
Shakespeare first folios, a five-page letter of George Washington’s, Roman coins
showing the heads of all twelve Caesars save one. Oblivious to Impressionists
and modern American artists, he favored objects with long, romantic histories,
European art sanctified by age. The banker of old money did prefer old masters,
and valued exquisite craftsmanship and costly materials. Yet paintings accounted
for a scant 5 percent of his collection. He preferred tapestries, jewel-encrusted
books, gilded altarpieces, illuminated manuscripts, gold and silver cups,
porcelains, and ivory. In stressing decorative arts, he followed in the footsteps of
the Rothschilds, the Medicis, and other merchant princes. He was proud of his
holdings and printed up private catalogues of his collection, which he distributed
to the royal households of Europe.
Morgan the collector was recognizably the same man as Morgan the banker.
He hated to haggle. He would come to terms by asking a dealer what he had paid
and then tacking on 10 or 15 percent; one recalls Pierpont barking bids for
foreign exchange on a take-it-or-leave-it basis. In art and finance, he relied on
the deal maker as much as the deal. Francis Henry Taylor, who studied Morgan’s
habits as a collector, wrote, “He was accused of not looking at the objects when
in reality he was looking into the eye of the man who was trying to sell it to him.
It was, after all, how he had reached the summit in finance and it had paid off
well.”67 To protect himself, he would buy a picture conditionally and leave it on
a chair, gathering the free comments of other dealers before completing the
purchase. Once, to test art dealer Joseph Duveen’s knowledge of Chinese
ceramics, he set out five on display. “Only three of them are genuine,” he said.
“Now tell me which they are.” Duveen smashed the two fakes with his cane.68
The godfather of U.S. Steel knew that to create a big collection he had to buy
art in huge batches and purchase entire collections. He roared tenaciously
through art history like a freight train shunting from one track to the next. “I
have done with the Greek antiquities,” he wrote his sister Mary Burns. “I am at
the Egyptian.”69 His determination was awesome. Wanting manuscripts owned
by one of Lord Byron’s relatives in Greece, he stationed an agent there, armed
with a letter of credit. For several years, this lonely sentinel bought Byron
manuscripts as they came on the market until the collection was complete.
Pierpont could also be childishly impulsive. He loved to hear the stories
behind works of art, which he would commit to memory. This genuine interest
served him better than the feigned sophistication of insecure millionaires who
bought “fine art” and ended up with high-priced junk. When one art dealer
appeared with a Vermeer, Pierpont asked, “Who is Vermeer?” After being told,
he peered at the $100,000 painting again. “I’ll take it,” he said. The story may be
apocryphal—Morgan had visited European museums for decades and would
have seen Vermeers—yet it captures his enthusiasm. In the last analysis,
Pierpont relied on his own fallible judgment. In 1911, Jack excitedly reported
that a dealer had offered $176,000 for an original 1530 Copernicus manuscript,
the basis of modern astronomy. In a huff, Pierpont cabled back: “Do not care for
Copernicus, certainly not at such absurd price.”70
And Pierpont could be disarmed by sentiment. One dealer tried to sell him a
manuscript collection that included Poe’s Tamerlane and Hawthorne’s Blithedale
Romance. When Morgan wouldn’t budge, the dealer played his trump card. He
noted a Longfellow poem about his grandchildren that, the dealer said, reminded
him of Pierpont and his grandchildren. “Let me see it,” replied Morgan. He put
on his spectacles, read the poem, then pounded the table. “I’ll take the
collection.”71
The scale of Pierpont’s collection was so outsize—it included 225 works of
ivory, 140 pieces of majolica, 150 works of Continental silver, and so on—that
vanity alone cannot explain it. Rather, it was founded in an impulse that
paralleled his banking ambition—to put America on a par with the European
civilization he so admired. As in banking, he honored Old World traditions even
as he ransacked them. It was said he wished to acquire a collection so huge that
Americans wouldn’t have to travel to Europe for culture. After 1897, he gave
steadily to the Metropolitan Museum of Art and became its board president in
1904. The board of trustees often met in his house. To mount a patriotic assault
on European masterpieces, he packed the board with millionaire friends—Frick,
Harkness, Rogers, and other industrial captains. In 1905, he brought Sir Purdon
Clarke from the South Kensington Museum to direct the museum and then
Bloomsbury art critic, Roger Fry, as its curator of paintings. Fry would later
taunt Pierpont for his “perfect insensibility” and “crude historical
imagination.”72 But the high quality of the Morgan collection would be proof
against Fry’s petty gibes.
In 1904, after acquiring the townhouse next-door to 13 Princes Gate, he
considered converting the two buildings into a museum as a memorial to his
father. He also hoped to create memorials to Junius in the four cities in which he
had lived—Holyoke, Massachusetts, Hartford, Boston, and London. After
deciding that the enlarged London house still couldn’t encompass his collection,
he commemorated Junius by building the $1.4-million Morgan Memorial in
Hartford, doubling the size of that city’s art museum, the Wadsworth Atheneum.
This single bequest, Pierpont’s largest, surpassed the $1 million he had given to
the Harvard Medical School in 1901 to honor his father.
A final note on Pierpont’s collection concerns the rashness with which he
financed it. Usually buying art during the summer, he would postpone payment
until early the next year—extraordinary to think of the world’s foremost banker
buying art on credit! As early as 1902, Teddy Grenfell noted in his journal
“vague and disquieting rumors” in the City about the Morgan banks’ financial
soundness as a result of the whirlwind art collecting.73 He also noted the tension
when the time came to settle these purchases at the London or Paris offices. The
sums weren’t trivial. At Pierpont’s death, the collection was valued at an
estimated $50 million, or nearly half his entire fortune.
This nonstop buying posed a potential threat to Pierpont’s banking capital.
This was especially serious because he chose partners for their talent, not to
inject fresh capital into the business. It was one of the House of Morgan’s glories
that poor boys could join its exclusive club. Yet Pierpont didn’t always husband
his capital. Years later, Morgan partner Russell C. Leffingwell passed along the
insider stories about the problems created by the art sprees. “The notion that the
elder Morgan bought pictures and tapestries partly to make money is certainly
contrary to the fact,” he told a colleague. “It was a self-indulgence on a
magnificent scale, and a source of great anxiety and at times weakness to his
firm, which could well have used the money as capital in the business if he had
not spent it so lavishly.”74 In the last analysis, the collector’s impulse to spend
won out over the banker’s impulse to save.
CHAPTER SEVEN
PANIC
THE folk wisdom of Wall Street says that if a crash is widely expected, it
won’t occur, for a saving fear will filter through the marketplace. This was
refuted in 1907, when Wall Street spent a cliff-hanging year awaiting the crash
that came. On March 25, panic selling roiled the Stock Exchange. The financial
powers—Henry Clay Frick, Edward H. Harriman, William Rockefeller, and
Jacob Schiff—assembled at the Corner for a secret meeting. They wanted a $25million pool to steady prices. Jack cabled Pierpont in London, saying Schiff
“thought amount of money really needed would be very small, as moral effect of
concerted action on part of large interests heretofore antagonistic would be
sufficient without actual purchases.”1 While Jack favored cooperation, Pierpont
fired back a hostile cable, saying such an action “would be unwise, entirely at
variance with all the policies we have ever adopted being at the head of a
declared Stock Exchange manipulation.”2 The next day, the market rallied—
partly on the basis of incorrect reports that Pierpont had joined relief efforts—
and the plan was scrapped. All spring, as Pierpont cruised around Europe, his
partners wired him that a serious autumn drop appeared likely.
At age seventy, Pierpont was often in low spirits. In photographs, his eyes
look slightly unfocused, as if telling of inner turmoil. The October 1907 panic
found him at the Episcopal Convention in Richmond, Virginia. As a lay delegate
from New York, he would attend these conventions in opulent style, bringing
bishops down by private railroad car and throwing parties catered by Louis
Sherry. Nothing pleased him more than recondite controversies over prayer-book
revisions and other matters remote from the material world. At the same time,
the contradictory Pierpont brought with him a lady friend, Mrs. John Markoe of
Philadelphia, a relative of his personal physician, Dr. James Markoe, and often
mentioned as a possible mistress.
As the Richmond convention progressed, emergency telegrams came in thick
and fast from 23 Wall Street. Morgan’s friend Bishop William Lawrence noted in
his diary how Morgan would study the telegrams, place his palms on the table,
then stare fixedly ahead. Though Pierpont was needed on Wall Street, his
partners feared a premature return might itself touch off a panic. By Saturday,
October 19, he decided to rush back by private railroad car to deal with a
spreading bank crisis. “They are in trouble in New York,” he told Bishop
Lawrence. “They do not know what to do, and I don’t know what to do, but I am
going back.”3
The 1907 panic was Pierpont’s last hurrah. Although semiretired, reporting to
work periodically for only an hour or two, he suddenly functioned as America’s
central bank. Within two week’s time, he saved several trust companies and a
leading brokerage house, bailed out New York City, and rescued the Stock
Exchange. His victory was Pyrrhic, however, as America decided that never
again would one man wield such power. The 1907 panic would be the last time
that bankers loomed so much larger than regulators in a crisis. Afterward, the
pendulum would swing decidedly toward government financial management.
The panic was blamed on many factors—tight money, Roosevelt’s Gridiron
Club speech attacking the “malefactors of great wealth,” and excessive
speculation in copper, mining, and railroad stocks. The immediate weakness
arose from the recklessness of the trust companies. In the early 1900s, national
and most state-chartered banks couldn’t take trust accounts (wills, estates, and so
on) but directed customers to trusts. Traditionally, these had been synonymous
with safe investment. By 1907, however, they had exploited enough legal
loopholes to become highly speculative. To draw money for risky ventures, they
paid exorbitant interest rates, and trust executives operated like stock market
plungers. They loaned out so much against stocks and bonds that by October
1907 as much as half the bank loans in New York were backed by securities as
collateral—an extremely shaky base for the system. The trusts also didn’t keep
the high cash reserves of commercial banks and were vulnerable to sudden runs.
That Pierpont rescued the trusts was ironic, for they were anathema to the
Wall Street establishment. As George Perkins said, “Indeed, we hadn’t any use
for their management and knew that they ought to be closed, but we fought to
keep them open in order not to have runs on other concerns.”4 When J. P.
Morgan and other prestigious houses referred clients to them for trust work, the
unscrupulous trusts tried to steal the nontrust business of these clients. Two
young bankers, Henry Pomeroy Davison of the First National Bank and Thomas
W. Lamont of Liberty Bank, were among those who in 1903 set up a “captive”
trust called Bankers Trust. Although commercial banks couldn’t do trust
business, they could own trusts, and they pooled their money to set up the new
bank. The idea was that the House of Morgan and its allies would refer trust
business to Bankers Trust, which would politely return the customers once their
trust business was complete. By no accident, the Morgan bank would stare
vigilantly at Bankers Trust across the Corner of Broad and Wall.
On Monday, October 21, the day after Pierpont returned from Richmond, a
collapse in copper shares undermined the trusts. There were fears of a copper
glut, spurred partly by news that the Morgans would join the Guggenheims in
developing new Alaskan copper mines. When an attempt to corner United
Copper burst, its stock skidded 35 points in just two hours, spreading ruin and
dragging stocks to levels unseen since the 1893 depression. Charles T. Barney,
president of Knickerbocker Trust, was associated with F. Augustus Heinze and
other speculators who had cornered United Copper. So the stock’s fall alarmed
the Knickerbocker’s eighteen thousand depositors. At its new main office at
Thirty-fourth Street and Fifth Avenue, customers lined up on Tuesday morning
to empty their accounts.
As panic spread to other trusts around town, Pierpont took charge of the
rescue operation. Emergencies seemed to fortify his confidence even as they
introduced doubt or terror in others. He formed a committee of young bankers,
including Henry Pomeroy Davison of the First National Bank and Benjamin
Strong of Bankers Trust. He sent them to audit the Knickerbocker’s books. Later,
as all-powerful governor of the New York Federal Reserve Bank, Strong would
recall peering out at grim depositors from the bank’s back room. “The
consternation of the faces of the people in the line, many of them I knew, I shall
never forget. I know that Harry left the building with a sense of dejection and
defeat which it is quite impossible for me to describe.” Pierpont wrote off the
Knickerbocker as hopeless and it failed on Tuesday afternoon, October 22.5 “I
can’t go on being everybody’s goat,” he said. “I’ve got to stop somewhere.”6 A
few weeks later, refused admission to see Pierpont, Charles Barney of the
Knickerbocker shot himself, an act that produced a wave of suicides among the
bank’s depositors.
On Tuesday night, Pierpont and other bankers met at a Manhattan hotel with
Treasury Secretary George B. Cortelyou, who pledged cooperation. The next
day, Cortelyou put $25 million in government funds at Pierpont’s disposal. It
was an extraordinary transference of power to a private banker and further proof
of Teddy Roosevelt’s high regard for Morgan.
The Knickerbocker’s failure triggered runs on other trusts, especially the Trust
Company of America, which was just down Wall Street from the Morgan bank.
On Wednesday, October 23, Pierpont summoned the trust presidents and tried to
prod them into a rescue pool. It turned out they didn’t know one another, making
it difficult for them to band together in a crisis. The situation illustrated why
bankers believed implicitly in their old-boy networks. After Ben Strong
delivered a favorable report on the Trust Company of America, Pierpont made
his ex cathedra pronouncement: “This is the place to stop the trouble, then.”7
Morgan, George F. Baker of First National Bank, and James Stillman of National
City Bank provided $3 million to save the Trust Company of America.
For two weeks, Morgan and his associates stood fast against a spreading
typhoon. As panic increased, depositors thronged banks across the city. People
sat overnight in camp chairs, bringing food and waiting for the banks to open in
the morning. New York police distributed numbers to people to save their places;
in other cases, exhausted depositors paid enterprising standees to wait for them.
(A later Wall Street eminence, Sidney Weinberg of Goldman, Sachs, earned $10
a day holding down places in line.) To reduce withdrawals and avert the need for
shutdowns, trust tellers counted out the money in slow motion, like people in a
trance.
Strapped for cash, the trusts called in margin loans from stock market
speculators. The price of call money—that is, the interest rate on margin loans to
buy stocks—zoomed to 150 percent. Nevertheless, there remained a shortage of
ready funds. Perkins cabled Jack, who was in London: “At all times during the
day there were frantic men and women in our offices, in every way giving
evidence of the tremendous strain they were under.”8 Pierpont was accosted by
hundreds of distraught brokers who faced ruin and pleaded for help. Photographs
of the Corner show dense throngs of men in derbies and dark coats, solidly
massed along Wall Street in somber ranks. For these terrified men, Morgan
emerged as the Redeemer, the one man who could save them. In a human wave,
they surged right to the door of 23 Wall, where “the struggling mob fought their
way on, all looking up at the windows of J. P. Morgan & Co.”9
On Thursday, October 24, with stock trading virtually halted, New York Stock
Exchange president Ransom H. Thomas crossed Broad Street and told Morgan
that unless $25 million were raised immediately, at least fifty brokerage firms
might fail. Thomas wanted to shut the Exchange. “At what time do you usually
close it?” Morgan asked—though the Stock Exchange was twenty paces from his
office, Pierpont didn’t know its hours: stock trading was vulgar. “Why, at three
o’clock,” said Thomas. Pierpont wagged an admonitory finger. “It must not close
one minute before that hour today.”10 At two o’clock, Morgan summoned the
bank presidents and warned that dozens of brokerage houses might fail unless
they mustered $25 million within ten or twelve minutes. By 2:16, the money was
pledged. Morgan then dispatched a team to the Stock Exchange floor to
announce that call money would be available at as low as 10 percent. One team
member, Amory Hodges, had his waistcoat torn off in the violent tumult. Then a
blessed moment occurred in Morgan annals: as news of the rescue circulated
through the Exchange, Pierpont heard a mighty roar across the street. Looking
up, he asked the cause: he was being given an ovation by the jubilant floor
traders.
The next day, call money soared again to extortionate rates. Eight banks and
trust companies had already failed during the week. Pierpont went to the New
York Clearing House, the banker’s trade group for clearing checks, and got it to
issue scrip as a temporary emergency currency to relieve the serious cash
shortage. Herbert L. Satterlee has left a wonderful vignette of his father-in-law
returning to 23 Wall. It shows why contemporaries saw Morgan as the
incarnation of pure will:
Anyone who saw Mr. Morgan going from the Clearing House back to his office
that day will never forget the picture. With his coat unbuttoned and flying open,
a piece of white paper clutched tightly in his right hand, he walked fast down
Nassau Street. His flat-topped black derby hat was set firmly down on his head.
Between his teeth he held the paper cigar holder in which was one of his long
cigars, half smoked. His eyes were fixed straight ahead. He swung his arms as he
walked and took no notice of anyone. He did not seem to see the throngs in the
street, so intent was his mind on the thing that he was doing. Everyone knew
him, and people made way for him, except some who were equally intent on
their own affairs; and these he brushed aside. The thing that made his progress
different from that of all the other people on the street was that he did not dodge,
or walk in and out, or halt or slacken his pace. He simply barged along, as if he
had been the only man going down Nassau Street hill past the Subtreasury. He
was the embodiment of power and purpose.11
That Friday night, Pierpont called in city religious leaders and asked them to
preach calm in their Sunday sermons. Archbishop Farley held a special Sunday
mass for businessmen. Grappling with a bad cold that had dogged him for days,
Pierpont went up to Cragston for the weekend. On Monday, October 28, New
York City mayor George B. McClellan came to the Morgan Library with another
serious brush fire to extinguish. Alarmed by events on Wall Street, European
investors were withdrawing money from America, and the city couldn’t place its
warrants abroad. The city needed $30 million to cover its obligations, McClellan
said. Morgan, Baker, and Stillman agreed to provide the needed money—the
first of four Morgan-led rescues of New York City in this century. In a bravura
performance, the seventy-year-old Pierpont extemporaneously drafted a letterperfect contract on Morgan Library stationery. He also demanded a bankers’
committee to monitor the city’s bookkeeping practices, a feature of later New
York City crises as well.
For a seventy-year-old man with a bad cold, Pierpont handled the 1907 panic
like a virtuoso. He sucked lozenges and worked nineteen-hour days. He said that
he missed Jack. At moments, his physician, Dr. Markoe, plied his throat with
sprays and gargles, as if the banker were an aging boxing champ being
resuscitated between rounds. The doctor also extracted a pledge that Pierpont
would cut down his cigar consumption to only twenty a day! When he dozed
during an emergency meeting, nobody dared disturb the royal snooze. One
banker “reached forward and lifted from the relaxed fingers, as one might take a
rattle from a baby, the big cigar that was scorching the varnish on the table.”12
For a half hour, he was fast asleep as bankers discussed a $10-million loan.
During the 1907 panic, Pierpont proved that American finance could aspire to
high drama. In an elaborate finale on Saturday night, November 2, he devised a
rescue for the still-shaky Trust Company of America, for Lincoln Trust, and for
Moore and Schley, a speculative brokerage house that was $25 million in debt.
This last company held a gigantic majority stake in the Tennessee Coal and Iron
Company as collateral against loans. If it had to liquidate that stake, it might
collapse the stock market. If Moore and Schley, in turn, collapsed, it might
topple other houses as well.
Like an impresario creating his theatrical masterpiece, Pierpont gathered the
city’s bankers at his library. He settled commercial bankers in the East Room,
beneath signs of the zodiac and a tapestry of the seven deadly sins, while in the
West Room trust-company presidents sank into deep red couches and armchairs
beneath the gaze of saints and Madonnas. In between, like lupiter above the fray,
Pierpont played solitaire in Belle Greene’s office.
One spectator was Tom Lamont, now a vice-president of Bankers Trust. Then
only an “experienced errand boy,” as he said, he was entranced by the pageantry.
Of Pierpont’s successors, only Lamont would possess the flair to stage such
events. He recalled: “A more incongruous meeting place for anxious bankers
could hardly be imagined. In one room were lofty, magnificent tapestries
hanging on the walls, rare Bibles and illuminated manuscripts of the Middle
Ages filling the cases; in another, that collection of the Early Renaissance
masters—Castagno, Ghirlandaio, Perugino, to mention only a few—the huge
open fire, the door just ajar to the holy of holies where the original manuscripts
were guarded.”13
To save Moore and Schley, Pierpont wanted some payoff for himself. With his
usual sense of martyrdom, he felt it was his due. With his peculiar bifocal vision,
he saw the panic as a time for both statesmanship and personal gain. At this
point, he told friends that he had done enough and wanted some quid pro quo.
He now took an appropriately big fee.
Pierpont hatched a scheme that would save Moore & Schley, avert its need to
sell the Tennessee Coal and Iron block in the open market, and benefit his
favorite creation, U.S. Steel. He knew U.S. Steel could profit from Tennessee
Coal’s huge iron ore and coal holdings in Tennessee, Alabama, and Georgia. For
antitrust reasons, it was a prize unattainable under ordinary circumstances. So he
struck a deal: U.S. Steel would buy Tennessee Coal stock from Moore and
Schley if the hesitant trust-company presidents assembled a $25-million pool to
protect the weaker trusts. What a characteristic mix of high and low motives!
Ben Strong noticed that Pierpont had locked the enormous bronze doors and
pocketed the key. He was up to his old tricks—confinement of adversaries, a
deadline, the abrupt appearance of the menacing host after long hours of
bargaining. At a quarter to five in the morning, Pierpont pushed a gold pen into
the hand of Edward King, leader of the trust presidents. “Here’s the place, King.
And here’s the pen.”14 Beaten down by all-night bargaining, King and the other
trust company presidents agreed to contribute to the $25-million pool.
On Sunday night, Henry Clay Frick and Judge Elbert Gary of U.S. Steel sped
down to Washington on a midnight train. They traveled in a single Pullman car
specially hitched up to a locomotive. They had to secure Roosevelt’s approval
for U.S. Steel’s takeover of Tennessee Coal and Iron before the stock market
opened on Monday morning. They ended up interrupting Roosevelt in the
middle of his breakfast; mindful of the panic, TR said it was “no public duty of
his to interpose any objections.”15 In other words, the Sherman Antitrust Act
wouldn’t be used against U.S. Steel. Five minutes before the stock market
opened at 10:00 A.M., Gary called 23 Wall Street from the White House and told
George Perkins that the president had agreed to the plan. The stock market
rallied on the news.
Immediately, there were charges that Pierpont had duped Roosevelt into
scuttling his antitrust policy and sanctioning, under duress, an anticompetitive
steel merger. Wisconsin senator Robert La Follette even said the bankers had
rigged up the panic for their own profit. Certainly the $45-million distress sale
price of Tennessee Coal and Iron was a steal. Financial analyst John Moody later
said that the company’s property had a potential value of about $1 billion. Grant
B. Schley, head of Moore and Schley, also admitted later that his firm could have
been rescued by an outright cash infusion rather than the purchase of the
Tennessee Coal stock. So there was far more than altruism at work in the famous
all-night rescue of the firm.
Despite this controversy, Pierpont reached the zenith of his influence with the
1907 panic. As his biographer Frederick Lewis Allen wrote, “Where there had
been many principalities, there was now one kingdom, and it was Morgan’s.”16
Pierpont was suddenly not a pirate but a sage. Woodrow Wilson, then president
of Princeton University, said the nation should be advised on its future by a
panel of intellectuals, and he recommended Pierpont Morgan as its chairman.17
The tributes, nonetheless, coincided with new concern about America’s financial
system. U.S. financial panics recurred with worrisome regularity, every ten
years. The 1907 panic exposed many systemic defects. As people hoarded
money and banks called in loans, there was no central bank to instill confidence
or offset the sudden credit contraction. Sharp drops in the money supply then led
to severe recessions. The country needed an elastic currency and a permanent
lender of last resort.
From the ashes of 1907 arose the Federal Reserve System: everybody saw that
thrilling rescues by corpulent old tycoons were a tenuous prop for the banking
system. Senator Nelson W. Aldrich declared, “Something has got to be done. We
may not always have Pierpont Morgan with us to meet a banking crisis.”18 By
confirming his storied powers, Pierpont also inadvertently fostered talk of an
omnipotent Wall Street money trust. President Roosevelt now recommended
federal regulation of the stock exchanges, while New York governor Charles
Evans Hughes wanted margin requirements raised from 10 to 20 percent. If these
suggestions had been enacted, the country might have been spared some of the
lurid excesses of the 1929 crash.
The one direct consequence of the 1907 panic was a universal clamor for
banking reform. In 1908, Congress passed the Aldrich-Vreeland Currency Act,
which created the National Monetary Commission to study changes in the
banking system. The commission was chaired by Senator Aldrich of Rhode
Island, and the House of Morgan quickly moved to exert influence on it. Perkins
cabled Pierpont in London that he and George F. Baker, the walrus-mustached
head of the First National Bank, had stayed away from Washington, lest the new
legislation be seen as a Wall Street plot. At the same time, Perkins sent a coded
cable saying that Harry Davison, Baker’s young protégé, would be Aldrich’s
adviser: “It is understood that Davison is to represent our views and will be
particularly close to Senator Aldrich.”19 Davison had been Pierpont’s cool
lieutenant during the 1907 panic and had greatly impressed him. When the
Aldrich commission was about to depart for a tour of Europe’s central banks,
Davison went ahead to confer with Pierpont, who wanted a private central bank
on the Bank of England model. Davison would be the only banker to accompany
the senators and congressmen on their mission.
A central bank was by no means supported by all Democrats. William
Jennings Bryan and the Populists feared that a central bank would be dominated
by the same hard-money men who ran Wall Street. They saw it as an institution
that would slay the silverites. In many ways, the concept was associated more
with conservative, hard-money men. Pierpont was amenable to central banks so
long as they were private and had boards composed of bankers. As Pierpont’s
man on the commission, Davison reflected his mentor’s uncompromising
preference for banker rather than politician control of a central bank. He also
expected such a bank to introduce a “level playing field” and end the
competitive advantage of the trusts.
In November 1910, in what was billed to the press as a “duck-shooting
holiday,” Davison (now a Morgan partner) and other Wall Street bankers met
secretly at the Jekyll Island Club, a palm-shaded seaside compound of turreted
buildings off the Georgia coast and a favorite Morgan hideaway. Known as the
resort of the one hundred millionaires, Jekyll Island claimed among its
organizers Pierpont’s chum George F. Baker. Pierpont kept an apartment in its
San Souci building. The Jekyll Island meeting would be the fountain of a
thousand conspiracy theories. Here Wall Street bankers worked out their plan for
a central bank under private aegis, a system of regional reserve banks topped by
a governing board of commercial bankers. Davison, an architect of the meeting,
not only got a suspicious stationmaster in Brunswick, Georgia, to keep quiet
about his suspicions, but often led the discussion. As Paul M. Warburg of Kuhn,
Loeb, one of the key theoreticians at the meeting, later said, “Davison had an
uncanny gift in sensing the proper moment for changing the topic, for giving the
discussion a timely new turn, thus avoiding a clash or deadlock.”20
When Senator Aldrich presented his bill for a central bank to Congress in
1910, the Democrats blocked it. In 1913, Congressman Carter Glass, a Virginia
Democrat, used it as the basis for the Federal Reserve Act, although making
extensive modifications. President Wilson successfully demanded that the
system of twelve private regional reserve banks be placed under a central
political authority, a Washington board that would include the Treasury secretary
and presidential appointees. Progressives hoped the Federal Reserve would
reduce the House of Morgan’s unique power. As we shall see, the truth was far
more complex, for the bank would skillfully harness the Fed and use it to
amplify its powers. In an ironic outcome unforeseen by reformers, it would
become the private bank of choice for central banks throughout the world, giving
it an incalculable new advantage.
the Republican president William Howard Taft took office in 1909, the
wily George Perkins flattered himself, thinking that he had already wormed his
way into its inner council. Taft sent him a confidential draft of his inaugural
address, which was “in all respects conciliatory and harmonizing in tone,”
Perkins reported to Pierpont.21 He felt convinced Taft would water down the
troublesome Sherman Antitrust Act. In coded cables to Morgan, who was
vacationing in Egypt, Perkins made it sound as if he alone had picked the new
cabinet. “Acting on suggestion made solely by me 2 weeks ago Franklin MacVeagh Chicago has been selected for Secretary of Treasury. Wicker-sham will be
Attorney General and other places are filled to our entire satisfaction.”22
Yet the one-term Taft administration would be deeply ambivalent toward the
House of Morgan. On the surface, it would seem even more hostile than
Roosevelt’s and surprisingly aggressive in battling the trusts. It filed antitrust
suits against two cherished Morgan progeny—U.S. Steel and International
Harvester. The Taft years also saw the dismemberment of John D. Rockefeller’s
Standard Oil trust and James B. Duke’s American Tobacco trust. For all his
windy attacks on the trusts, Teddy Roosevelt had been far more circumspect
about translating his words into tough action.
Yet there was more to the Taft-Morgan relationship than a progressive crusade
against a Wall Street cabal. If trustbusting made good political theater, the deeper
story was one of foreign collaboration. Even as Washington chastised the banks
at home, it was forging them into foreign-loan syndicates in a new age of dollar
diplomacy. With the U.S. defeat of Spain and the colonization of the Philippines
and Puerto Rico, the country had acquired a new taste for imperialist adventure,
and the House of Morgan would be one of its main instruments.
Henceforth, much of the Morgan saga revolves around incestuous dealings
between the Morgan banks in New York and London and their respective
governments, intrigue that would drape them in mysterious new raiment. The
Baronial Age was one of unbridled laissez-faire, marked by often unqualified
hostility on the part of bankers toward government. But in the dawning
Diplomatic Age, there would be an explicit fusion of financial and government
power. In time, it would become hard to disentangle the House of Morgan from
various aspects of Anglo-American policy. Yet there would also be spectacular
instances in which Morgan policy would take on a clandestine life of its own,
diverging from official dictates.
The new alliance was mutually advantageous. Washington wanted to harness
the new financial power to coerce foreign governments into opening their
markets to American goods or adopting pro-American policies. The banks, in
WHEN
turn, needed levers to force debt repayment and welcomed the government’s
police powers in distant places. The threat of military intervention was an
excellent means by which to speed loan repayment. When Kuhn, Loeb
considered a loan to the Dominican Republic, backed by customs receipts, Jacob
Schiff inquired of his London associate Sir Ernest Cassel, “If they do not pay,
who will collect these customs duties?” Cassel replied, “Your marines and
ours.”23
During its first year, the Taft administration recruited the House of Morgan in
a scheme to create a financial protectorate over Honduras and bail out British
bondholders at the same time. As part of a debt settlement, the bank would buy
up old Honduran bonds, which were selling at a steep discount in London.
Secretary of State Philander Knox would then impose an American lien on
Honduran custom-house receipts and sell new Honduran bonds through a
Morgan syndicate. The scheme would be backed up by American military might.
Although Senator William Alden Smith, for one, was irate that the State
Department supported the Morgan scheme, the bank had actually been
dragooned by the government. Serving only prime government clients, the
House of Morgan had a supercilious attitude toward small, backward countries.
As Jack said in a cable to the London office, “Negotiations only undertaken
because U.S. Government anxious get Honduras settled.”24 He and Harry
Davison refused to proceed without a treaty that provided ironclad guarantees
for the bonds. After enraged mobs besieged the Honduran assembly, protesting
threats to their sovereignty, the U.S. Senate vetoed the deal, and the operation
was scrapped.
The new era was most vividly adumbrated in China. As with Honduras, the
House of Morgan had no great relish for such a foreign operation. Backward and
sprawling, lacking a central army and modern budgeting, fin-de-siècle China had
proved exasperating for foreign bankers. Its officials excelled in playing off one
group of foreign creditors against another. (The bankers were accused of
exploiting the same strategy with Chinese officials.) This not only bred
resentment among bankers but fostered a decided Wall Street prejudice in favor
of China’s ancient enemy, Japan.
The French, Germans, and British were already well entrenched in China,
controlling their own spheres of influence. The European bankers had entered
the picture in the late nineteenth century, when provincial Chinese merchants
lacked the necessary capital to build railroads. In 1899, Secretary of State John
Hay had declared an “open door” policy toward China that was supposed to
guarantee unrestricted foreign access. Under Taft, however, the open door was
converted into a blunt U.S. demand for inclusion in China on an equal basis with
the European powers.
In 1909, the State Department prodded a reluctant Wall Street to undertake
Chinese business. A consortium of British, French, and German banks had
nearly completed negotiations for a $25-million loan for the Hukuang Railway,
which ran from Shanghai to Canton. Much to the European’s dismay, the State
Department demanded an equal share for U.S. bankers. As Herbert Croly wrote,
“The majority of these bankers had gone into the Group not because they were
seeking Chinese investments but in order to oblige the administration.”25
The State Department placed the House of Morgan at the head of an American
Bankers Group that included Kuhn, Loeb, the National City Bank, and the First
National Bank. Only a few years before, these firms had viciously quarreled
during the Northern Pacific corner. Now Washington was welding them into an
instrument of national purpose, believing that banker unity would magnify
American influence abroad. When Jack cabled his father in London about the
arrangement, Pierpont couldn’t suppress his competitive instincts. “Strikes me
favorably,” he responded, “but, strictly confidential and for your own use only,
important J. P. M. & Co. take lead and name mentioned first. Suppose fact
already recognized but must not be overlooked.”26
The American Group met at 23 Wall Street, with Harry Davison in the chair
but the State Department pulling the strings. Ordinarily commanding and goodhumored, Davison chafed at the controls. He instructed Teddy Grenfell in
London, “Think it would be very wise if you would casually but firmly point out
to those with whom you come in contact that this is a proposition of the
Government and not of the Bankers.”27 The popular press applauded the latest
salvo in the Morgan-White House wars and fancied that trustbusters now had
bankers on the run. Meanwhile, Davison moaned: “Continue to be governed
entirely by wishes of State Department.”28 For bankers who had prided
themselves in their fierce independence from government, this new strait-jacket
was hard to tolerate.
Teddy Grenfell, partner in J. S. Morgan and Company (soon to be Morgan
Grenfell) represented the American group in its dealings with the British,
French, and German banker groups of the China consortium. Now and in the
future, he would be an important intermediary between 23 Wall Street and the
British government. Bolted together internally, the Morgan banks acted
autonomously in many matters. It was a tricky situation, fraught with conflicts,
for the New York and London houses were always sensitive to requests from
their respective governments. In 1908, for example, J. S. Morgan and Company
withheld a Turkish loan at the Foreign Office’s behest, then extended it the
following year when bureaucratic winds shifted. So long as British and
American interests coincided, this situation posed no problem. But a conflict was
buried here that would later tear apart the Anglo-American Morgan empire.
However much it might camouflage it, the House of Morgan wasn’t a
multinational bank but an American bank with partnerships abroad. Many times,
it would be impossible to appease both the United States and Britain.
From 1909 to 1913, the American Group served as a conduit for all Morgan
dealings with China. Its representative in China was the most dashing,
adventurous agent in Morgan history—Willard Dickerman Straight. Straight’s
life reads like a spy thriller. Fresh out of Cornell, he worked for the Imperial
Maritime Customs Service in Peking and studied Mandarin. In 1904, he went to
Japan to report on the Russo-Japanese War for Reuters and the Associated Press.
A friend in those years described him as “tall, slim, with reddish-brown hair, of
unusual frankness and charm of manner.”29 While reporting from Seoul, Korea,
he met Edward H. Harriman at a dinner, an experience that transformed his life.
Harriman then controlled the Union Pacific Railroad and the Pacific Mail
steamship line, which he saw as the first two legs of a round-the-world
transportation system. He recruited the enthusiastic Straight to win the critical
China rail link. Then, in 1906, Teddy Roosevelt invited Straight to the White
House, saying he was signing up bright young Ivy Leaguers to join the Foreign
Service and drum up business for American companies abroad. To assist
Harriman’s venture, Roosevelt assigned Straight—then only in his twenties—to
be the U.S. consul general in Mukden, a bustling rail center in Manchuria. He
would be the sole State Department representative north of the Great Wall.
In those days, Manchuria was colorfully described as the cockpit of Asia, the
place where Russian and Japanese imperial interests clashed and European
powers vied for influence. Nobody could have savored this romantic crossroads
more than Willard Straight. He was an improbable mix of frank imperialist and
young idealist, viewing American bankers as a buffer against Japanese and
Russian encroachment in Manchuria. Cloaking dollar diplomacy in a mantle of
altruism, he thought unity among foreign bankers would prevent any single
country from exploiting China. This argument would eventually be exposed as a
self-serving American delusion. But Straight was young and ardent and easily
convinced himself of his mission of salvation.
An intimate of mandarins in the Manchu court, he had a poetic sensibility,
sketching watercolors of queued street vendors and illustrating a book about
China. He sang Kiplingesque lyrics as he strummed his guitar and loved the
themes of imperial conquest. His letters were spiced with vivid, exotic imagery,
describing China as “the storm center of world politics,” a place “where
everyone more or less is spying on everyone else.”30 In 1909, he met one of
America’s richest heiresses, Dorothy Whitney, and they became engaged two
years later. She was the orphaned daughter of William C. Whitney, a former
navy secretary who had made a fortune in tobacco, traction, automobiles, and
stock market speculation, and she had inherited $7 million. Recently president of
the Junior League in New York, she was touring China when she met Straight.
She had a wild, romantic sensibility that matched his own. In Peking, she
recalled, they “walked along the city wall at sunset time and watched the soft
glow of the distant purple hills.”31 Dorothy and Willard Straight would pass
through the turbulence of revolutionary China with the cool insouciance of a
couple in an elegant Hollywood farce.
In 1909, Straight was appointed representative of the American Bankers
Group. He had enough youthful idealism to be disturbed by much of what he
saw within the group. During the summer of 1910, he worked at 23 Wall Street
—he thought the address a good omen, because the street number was the same
as Dorothy’s birthday—and was appalled at the way the House of Morgan
bossed around the State Department. Davison might chafe at government
control, but Straight saw things quite differently. When Pierpont instructed
Davison, “You might as well make it clear that when we want to discuss things
with the U.S. Government we want [the secretary of state] and not [the assistant
secretary],”32 Straight commented sardonically, “It was not difficult to see where
the real power lies in this country.”33 Pierpont might have been so imperious
because the secretary of state was Philander C. Knox, who, as attorney general
under Roosevelt, had filed the suit against the Northern Securities Company.
Knox dutifully came to 23 Wall whenever he wished to speak to the American
Group.
In 1910, the China enterprise expanded beyond the railway loan to include a
massive $50-million loan to China for currency reform. Willard rhapsodized
about the new loan to Dorothy: “It’s history . . . and big history at that—the
game for an empire.”34 The Chinese objected to a provision that required a
Western adviser as a new overseer of Chinese finances. As a compromise, a
Dutchman was unobtrusively slipped into the post. In 1911, Straight and
representatives from England, France, and Germany signed the loan with
Chinese officials. Willard wrote excitedly to Dorothy, “We’ve arranged it so that
we can practically dictate the terms of China’s currency reform. When you think
of holding the whip hand in formulating the first real sound financial basis for a
country of 400 million, it’s quite a proposition.”35
The loan generated worldwide publicity and made Straight an instant hero.
Along with his prestigious association with the House of Morgan, the China loan
helped reconcile Dorothy’s family to her marrying beneath her social station.
Teddy Roosevelt interceded to plead Willard’s cause. Dorothy belonged to the
polo-playing set of Locust Valley and Westbury, two Long Island communities
rich in Morgan partners. Robert Bacon and his wife had been almost substitute
parents after her own parents died, and she knew Pierpont as well. “Dear Mr. J.P.
he’s such a sweetie underneath the sternness,” she wrote to Willard.36 In fact,
Straight may have clung to the Morgan position longer than he wanted to
because of its social utility.
Straight’s naive hopes about the China loan were soon to be dashed by
geopolitical realities. He and the bankers had cast their lot with the corrupt
Manchu dynasty, which was oblivious to turmoil beyond the palace walls.
Straight himself grew disillusioned with the “selfish, narrow-minded bigotry” of
the Chinese officials. Yet he wanted to perpetuate the Manchu dynasty to save
the loan. He was caught up with the wrong issues; he was worrying about the
composition of banking syndicates and missed the popular revulsion from all
foreign bankers. At a Paris conference on China’s finances in 1912, the Japanese
and Russians demanded—and obtained—inclusion in the China consortium.
This was Straight’s nightmare: the group now included China’s traditional
enemies. Bankers, he saw, couldn’t operate in a void but were enmeshed in
larger political forces. Gloomily he foresaw “the inevitable day when China’s
finances will be administered like Egypt’s—by an international board. Another
dream shattered!”37
In 1911, a nationalist revolution in China, fueled partly by resentment of
foreign bankers, ousted the Manchu dynasty and declared a republic. The liberal,
activist Dorothy Straight was sympathetic to the revolutionaries. In January
1912, Sun Yat-sen became provisional president, heading a movement seeking to
unify China and stop foreign meddling. Willard and Dorothy witnessed the
panicky exodus of Manchu nobles from a Peking aflutter with radical banners.
Willard slept with a loaded revolver by his side. The imaginative Dorothy
thrived on the danger, writing, “It would be rather exciting to be attacked by a
wild mob in the night.”38
One evening as the Straights were getting ready to dine with a British
neighbor, shooting did erupt nearby. As Willard recalled, “The pop, pop,
popping continued and our roof lines stood out sharply against the glow of the
first fire. I told Dorothy that it looked like trouble. She didn’t mind a bit, but
went on dressing for dinner, calm as you please, and objected strenuously when I
advised her to get into street dress in order that, if necessary, we could clear out
to the Legation.”39 During a pause in the fighting, they made it over to the
neighbor’s for dinner. But then soldiers began smashing and looting stores
nearby. After gathering up their maid and proper clothing, they fled for the safety
of the legation but were trapped by rioters on a dead-end street. Finally they
were rescued by a contingent of American marines. Piling into a rickshaw, bags
strapped to the back, Dorothy and Willard managed to thread their way through
pillaging mobs to the legation.40
This Morgan foray into China ended with Woodrow Wilson’s election and the
elevation of that Morgan bete noire, William Jennings Bryan, to secretary of
state. On March 10, 1913, Harry Davison and Willard Straight visited the new
secretary of state in Washington. (Unlike Knox, Bryan would never deign to
travel to 23 Wall Street.) Bryan asked them flat out what the group expected
from Washington if China defaulted. Davison didn’t mince words and said the
government might “be called upon to utilize both its military and naval forces to
protect the interests of the lenders.”41 Neither Bryan nor Wilson sympathized
with such foreign meddling. A week later, Wilson denounced the loan as
“obnoxious to the principles upon which the government of our people rests.”42
The government was obviously withdrawing its support.
The next day, the American Bankers Group was effectively disbanded. As a
creature of Washington, it couldn’t survive without its blessing. Most bankers
were relieved, for they had come to doubt China’s willingness to repay the loan.
The end of the China business wasn’t mourned within the House of Morgan,
either. As Teddy Grenfell, who had been consumed by it, wrote to Jack, “I think
that all of us will have ’China’ written on our hearts when we die, with several
uncomplimentary epithets after it.’ ”43 Yet the experience had bridged
differences among big Wall Street banks and made them accustomed to working
together abroad. Morgans, National City, and First National arrived at an
understanding for participating together in all Latin lending. This Big Three
agreement would vastly magnify Morgan power. (Kuhn, Loeb often formed a
fourth member of their syndicates.) These same banks, ironically, would shortly
be hauled before the Pujo Committee as the abominable Money Trust. What the
public wouldn’t know was that the Money Trust had been forged, in part, by
Washington itself in its quest for foreign influence.
The new age of banker-government collaboration mellowed even the
vehemently antigovernment Jack Morgan. After wrangling with Washington
over a Honduran loan in 1912, he cabled Grenfell, “You will understand we do
not wish accuse our own Government too loudly in view of necessary relations
with them other foreign matters.”44 No less ideologically hostile to government
than his father, Jack saw the need to mute his public anger. The days of brusque
individualism were dead.
Willard Straight returned to work at 23 Wall, but never fit into a mundane
office setting. In the 1912 election, he and Dorothy supported their friend from
Oyster Bay, Teddy Roosevelt—an act that must have savored of subversive
tendencies among the Morgan partners. They also secretly read Louis Brandeis’s
attacks against Morgan’s handling of the New Haven Railroad. In 1914, they
were the financial angels for a new political weekly, The New Republic, which
initially had a strongly pro-Roosevelt slant. Harry Davison and other partners
spurned the chance to participate, and only Thomas Lamont joined them.
Restless and adventurous, Willard found it hard to submit to a banker’s
discipline and chafed at not being made a Morgan partner. He was always
concocting new schemes, such as the creation of India House on New York’s
Hanover Square, a club dedicated to foreign trade, which he outfitted with model
ships and antiques. In the end, even the spacious universe of J. P. Morgan and
Company would be too confining for the large, venturesome spirit of Willard
Straight. He would last only another two years at the bank.
CHAPTER EIGHT
TITANIC
MOROSE and fatalistic in his last years, Pierpont felt misunderstood by the
public and angered by the uproar over his trusts. He shook his cane menacingly
at reporters, a murderous gleam in his eyes. He wouldn’t admit to legitimate
public curiosity about his affairs. At Dover House in 1911, he burned the bound
letters he had sent to Junius for thirty-three years, destroying perhaps the most
important chronicle of Anglo-American finance in the late nineteenth century.
He craved a privacy impossible for the world’s most famous banker. Like a
ghost, he brooded in the West Room of his library, beneath stained-glass
windows and thick draperies that muffled the sounds of a changing world.
He spent much of his time in Europe, escaping the din of Progressive politics.
His wanderlust never deserted him. From European spas, he would notify Jack
of the next stop on his itinerary, adding those ever awkward words, “advise
mother.” He felt at home in many places. Once asked to name his favorite spots,
he replied, “New York, because it is my home; London, because it is my second
home; Rome and Khargeh.”1
Egypt, in particular, held a mystical charm for him, and he visited it three
times in his last three years and helped to bankroll the Metropolitan Museum’s
Egyptian excavations. (One 1909 photograph shows an oversize Pierpont on a
small donkey galloping into the desert ahead of his flabbergasted guides.) The
excavations at Khargeh, four hundred miles southwest of Cairo, so intrigued him
that he asked Thomas Cook and Sons to construct a steel Nile steamer named the
Khargeh. From this paddle-wheel boat, he would pitch coins into the water,
which were fished up by boys diving from the Nile’s bank.
Pierpont was a lonely man, and fame probably only deepened his isolation.
His first biographer, Carl Hovey, wrote, “It is said there are scarcely fifty men in
the financial district who have a speaking acquaintance with Morgan.”2 Pierpont
had a wide business acquaintance, but few associates knew him well. Hence, he
relied on his family for emotional sustenance. This made especially bruising a
feud with his youngest child, Anne Tracy, who was six years Jack’s junior.
Pierpont Morgan could conquer the world but not his daughter Anne. She was an
athletic, spirited girl who liked golf and tennis and rebelled against her formal
upbringing. Of all Pierpont’s children, Anne most resembled him
temperamentally: she was bright, stubborn, imperious, and highly opinionated.
Elizabeth Drexel, later the wife of socialite Harry Lehr, recalled her as a “thin
lanky child with an elfin face and penetrating eyes” but with “a personality and a
will as strong as [Pierpont’s] own and a disconcerting habit of putting her elders
in the wrong.”3 Once, at a dinner party with Pierpont’s cronies, her father peered
down the table and asked her what she planned to be when she grew up.
“Something better than a rich fool, anyway,” she snapped.4 Despite these gibes,
she was close to her father and often accompanied him to Europe aboard Corsair
III. Once, she served as host to the kaiser aboard the yacht.
By the early 1900s, Anne, now in her early thirties, had grown into a tall
young woman with short hair swept back on the sides, a strong nose, dark
eyebrows, and her father’s intense gaze. She had his executive talents and
childlike simplicity and hated cartoonists who mocked her father’s nose. She
was big and somewhat matronly but also stylish in dress. In 1903, Daisy
Harriman, a famous Washington hostess, brought her in as a founder of the
Colony Club, the first American ladies’ club, patterned after a British
gentlemen’s club. At Thirtieth Street and Madison Avenue, it was designed by
Stanford White and had a marble swimming pool and Turkish baths. Rules
forbade men above the first floor. Pierpont had no sympathy for the project and
lectured the ladies that “a woman’s best and safest club is her own home.”5
Predictably, Dorothy Whitney was an early member.
During the founding of this project, Anne met two older women who would
change her life. One was the stoutly mannish Bessie Marbury, the American
theatrical agent for George Bernard Shaw and Oscar Wilde; the other was Elsie
de Wolfe, the voguish former society girl and actress, now a famed interior
designer for her work on the Colony Club. In 1908, Anne, thirty-five, entered
into a menage a trois with these two women at their Villa Trianon in Versailles.
With its formal gardens, topiary, and trimmed lawns, the Villa Trianon was an
incongruously aristocratic setting for such a daring arrangement. De Wolfe
designed a dressing room that fit Anne’s contradictory nature; on its formal
mantelpiece were both a French bust and a leopard-skin velvet rug.
Over the years, these three patrician ladies pioneered in many cultural areas.
They opened a Broadway dance hall and sponsored Cole Porter’s first musical.
They also took up many liberal and feminist causes. Anne supported the strike
by women shirtwaist-workers, a largely Jewish group, inspected the sanitary
conditions in factories, opened a temperance restaurant in Brooklyn, started a
thrift association and vacation fund for young working women, and championed
women’s suffrage. On December 31, 1908, she lunched at the White House to
discuss social welfare with Teddy Roosevelt, who may well have savored the
idea of Pierpont’s extreme discomfiture. Anne’s exposure to her father’s business
friends bred considerable cynicism in her. When Lincoln Steffens once told her
he liked Judge Gary of U.S. Steel, she said impatiently, “Oh, he’s too plausible.
He has taken you in as he does others.”6
Pierpont was outraged by Anne’s liberal, unconventional behavior. If the three
women were discreet about their private affairs—even de Wolfe’s biographer
shrinks from using the word lesbian—they threw gala parties that attracted
attention. Bernard Berenson attended their gatherings, as did Pierpont’s mistress,
Maxine Elliott, who had acted with de Wolfe. The chain-smoking Anne was in
an agonizing situation. As one of the world’s richest young women, she was
relentlessly courted by titled Europeans. Scandal sheets frequently reported her
upcoming engagement to the French count Boni de Castellane, which never
came about. All the while, she dove deeper into causes and took stands that
aligned her with her father’s critics.
The facts of the rift between Pierpont and Anne are fragmentary. De Wolfe’s
biographer Jane S. Smith says Pierpont thought that Bessie Marbury had
poisoned Anne’s mind against him. She apparently told Anne that Pierpont used
her to cover up his trysts with mistresses when Anne accompanied him to
Europe on Corsair III. Pierpont’s other children violently disagreed with this
interpretation. Pierpont’s middle daughter, Juliet, bristled at references to de
Wolfe, while Jack was deeply upset by Anne’s behavior. In her memoirs,
Marbury handled the controversy tactfully: “Mr. Morgan was patriarchal in his
views. The emancipated woman enjoyed no favor in his eyes, therefore as his
daughter, she grew up determined that she must think for herself. ”7 She also
said of him, “To acknowledge defeat was foreign to his temperament. He was
always loyal to his mistakes.”8
Pierpont was wounded by the estrangement. “It broke her father’s heart when
she elected to part from him,” one of Anne’s friends told Clarence Barron.9 As
we have seen, Pierpont could be grimly implacable when crossed, and he blamed
Bessie Marbury for stealing away his daughter. Hence, he found an ingenious
way to torture her. Marbury coveted the French Legion of Honor and believed
she deserved it for her work in officially representing French dramatists in the
English-speaking world. By chance, in 1909, Robert Bacon, the ex-Greek God
of Wall Street, was named ambassador to France. Bowing to Pierpont’s wishes,
he made sure she was denied the honor. Knowing that the House of Morgan
objected prevented Bessie Marbury from ever receiving the government award
—even after she spent years raising money for France and donated her Versailles
home as a hospital during World War I. De Wolfe won the Croix de Guerre, and
Anne was decorated as a commander of the Legion of Honor for running an
ambulance corps and performing relief work. But Marbury—notwithstanding
letters of praise from former presidents Roosevelt and Taft—couldn’t overcome
the French fears of offending Morgan interests. Even beyond his grave, Pierpont
Morgan would not be thwarted.
relationship with Jack improved in his last years, perhaps in
reaction to his troubles with Anne and Fanny. Nobody doubted that Jack would
take over at the Corner, if only because the bank needed the Morgan name and
money. Jack was no slouch and ably handled affairs in his father’s absence. Yet
he didn’t have Pierpont’s gargantuan ego. Since boyhood, he had been plagued
by secret doubts about himself—it wasn’t clear to him whether he had the
intestinal fortitude to head a banking empire. In 1910, he had a collapse that was
diagnosed as strain and fatigue. So for a number of reasons, he wanted a strong
lieutenant, a powerful regent to take charge of the bank on a day-to-day basis.
He preferred the role of constitutional monarch, shaping policy and delegating
authority.
Two people competed for the position—Harry Davison and George Perkins.
Perkins carried several liabilities. He was always shadowed by the insurance
scandal from his years at New York Life. But the cause of Perkins’s downfall
would be that he saw himself as a king in his own right, not simply a Morgan
vassal. At his Riverdale estate, he had nine servants, a swimming pool, a
ballroom, and a bowling alley. In 1906, he bought the world’s largest custommade car—an eleven-foot French monstrosity with ebony woodwork, a writing
desk, and a washstand-table. His worst sin may have been not showing due
deference to the Morgans. He sneered at Jack and thought he was more highly
qualified to run the bank. He sometimes made decisions without consulting the
Morgans. In 1910, Pierpont told Harry Davison in London that Perkins had
defied his wishes on a financing arrangement for the Studebaker Company, news
that Davison passed along to Perkins. Perkins then wrote to Pierpont saying, “I
am very deeply disturbed by one remark that Davison made, viz., that you felt I
had gone ahead and deliberately disregarded an understanding with you and
concluded the business to suit myself.”10 Six months later, Perkins left the bank.
He was apparently forced out. Tom Lamont later said that Perkins “didn’t leave
of his own accord. Morgan thought he had been a little second-rate on some
deals.”11 When he resigned, Perkins took $5.5 million of his own securities out
PIERPONT’S
of the bank—one of many fortunes harvested at the House of Morgan.
For those skilled at reading the tea leaves, it grew clear that Henry Pomeroy
Davison would become chief operating executive. After he became a partner in
January 1909, he seemed to have almost exclusive access to Pierpont in his
library. As was clear in the 1907 panic, the handsome Davison had star quality, a
square-jawed toughness noticed by everyone on Wall Street. He had grown up in
a small Pennsylvania town, the son of a farm-tools dealer and poor relation in a
family of bankers. He skipped college when Harvard denied his scholarship
application. He had a steely, distinguished look—long eyebrows, hair parted
down the middle, and a wide, firm mouth.
Davison started out working for a bank in Bridgeport, Connecticut. One bank
director was P. T. Barnum, who liked him and invited him to join a weekly whist
game. In 1893, Davison married Kate Trubee, and they moved to New York so
Harry could start work at the Astor Trust Company. One day, a crank appeared at
his teller’s window, pointed a gun at Davison, and passed him a $1-million check
he wanted to cash, payable to “The Almighty.” The cool, quick-witted Davison
figured out a way to foil the holdup. He doled out the money in small bills and
kept saying in a loud, reverential voice, “A million dollars for the Almighty.”12
This gave a bank guard time to notify the police, who arrested the man.
Davison rose quickly as a protege of George F. Baker, Pierpont’s jowly, sidewhiskered chum and head of the First National Bank. He moved from the Astor
Trust to another Baker bank, the Liberty. Then Baker said, “Davison, I think
you’d better move your desk up here with us,” and he became a First National
vice-president. While there, he organized Bankers Trust in 1903, assisted in the
1907 panic negotiations, and represented Wall Street on Senator Aldrich’s
National Monetary Commission. These exploits won the attention of Pierpont,
who later said, “I always believe everything Mr. Davison tells me.”13
Anecdotes about Davison convey vigor, geniality, and self-confidence. Manly
and decisive, he shot moose in Maine and elephant, buffalo, rhino, hippos, and
antelope during a shooting trip up the White Nile. Once he dreamed he was a
small-town Pennsylvania bank clerk. In a sweat, he couldn’t balance the books.
When he awoke, his wife asked what had happened. “I finally solved the
problem; I bought the bank,” he replied.14 Immensely sociable, he seldom sat
down to dine at his North Shore estate, Peacock Point, with fewer than twenty
guests. Taking people under his wing, he had a way of guiding them, sometimes
brusquely and a bit intrusively. He was the great talent scout in Morgan history
and brought Tom Lamont, Dwight Morrow, Ben Strong, and John Davis into the
bank’s orbit.
Tom Lamont said that to young bankers on Wall Street, Davison “was not
simply a leader. He was a king, an idol, if you please.”15 Lamont was Davison’s
most important find. After college, he had worked for two years as a reporter on
the New York Tribune. (Later he would brilliantly parlay this fleeting experience
into an image of himself as an old newspaperman.) After salvaging a failing
import-export house through clever newspaper advertisements, he renamed it
Lamont, Corliss and Company. On Wall Street, he acquired a reputation for
straightening out troubled companies. This caught the attention of Harry
Davison, his neighbor in Englewood, New Jersey.
Tom Lamont never pushed or clawed his way to the top. He did everything
easily, jauntily, effortlessly. In 1903, at the age of thirty-three, he was returning
home on the commuter train to Englewood when Harry Davison took his life in
hand. As he entered the car, Davison was, musing about choices for a secretarytreasurer post at the new Bankers Trust. When Lamont appeared, Davison saw
his man. Lamont laughed at the offer. “But I don’t know the first thing about
banking. All my brief business life I have been borrowing money—not lending
it.” “Fine,” said Davison, “that’s just why we want you. A fearless borrower like
you ought to make a prudent lender.”16 It was a momentous intuition.
Lamont followed in Davison’s footsteps, taking his spot as vice-president at
First National Bank in 1909. In late 1910, Pierpont summoned him. “You see
that room over there? It’s vacant,” he said. “Beginning next Monday, I want you
to occupy it.”17 Lamont professed bewilderment. “But what can I do for you that
is worth while?” he asked. “Oh, you’ll find plenty to keep you busy, just do
whatever you see before you that needs to be done.”18 Was Lamont’s reluctance
simple candor—or splendid calculation?
Interestingly, with both Davison and Pierpont, Lamont refused the crown
being proffered. He told Pierpont he had a dream of traveling three months each
year. Far from being put off, Pierpont said, “Why, of course, take off as much
time as you like. That is entirely in your hands.”19 He advised Lamont to take a
cruise down the Nile, bringing along a couple of nurses for his children. There
was again a certain guile in Lamont’s handling of the offer. He must have known
that Pierpont spent months abroad each year. Was he holding up a mirror to the
old tycoon, saying tacitly, “Look here, don’t I remind you of yourself in younger
days?” Behind Lamont’s urbane charm stood a man of exceptional talent, the
more winning for its being presented with such apparent modesty.
To complete preparations for the succession, Pierpont made his final
disposition of J. S. Morgan and Company in London. Stipulating that it survive
for only a generation, or as long as Pierpont lived, Junius had permitted his name
to be used posthumously. Now the twenty years was about to elapse. Jack
explained that “as we approached 1910, Father said, ’You will have trouble
enough when I die without having to think of a new name for this firm, and I
suggest that we should now change it to Morgan Grenfell & Co., and make J. P.
Morgan & Co. partners in it, they to keep one million pounds in capital.’ ”20
On January 1, 1910, Morgan Grenfell was born. If it bore, for the first time, a
British name, its prestige was guaranteed by its New York money and
connections. While Teddy Grenfell’s name lent a protective British coloring in
the City, the capital remained largely American. Before 1910, Pierpont and Jack
had been partners of J. S. Morgan and Company. Under the new dispensation, J.
P. Morgan and Company itself would be a partner in London and draw half its
profits along with Drexel and Company in Philadelphia. Significantly, this
arrangement never worked in reverse. Partners at Morgan Grenfell in London or
Morgan, Harjes in Paris would thus hold second-class citizenship within the
Morgan universe. The Morgan dynasty was always carefully arranged so that 23
Wall Street remained primum inter pares.
Pierpont’s last year, he was beset by calamities, as if the gods were
punishing him on a scale worthy of his grandeur. His shipping trust, the
International Mercantile Marine, faced stiff competition from the Cunard Line,
which had built the swift and luxurious Mauretania and Lusitania with British
government subsidies. To counter Cunard, J. Bruce Ismay, president of the IMM,
and Lord Pirrie, the shipbuilder, decided to build a pair of mammoth ships.
Pierpont, always partial to grandiose ventures, approved the plan. The ships were
White Star’s Titanic and Olympic. The House of Morgan even lobbied the New
York Harbor Board for a hundred-foot extension of a Hudson River pier so it
could receive the twin ships.
In May 1911, Pierpont attended the Belfast christening of the Titanic and
studied the spot on B deck where his personal suite would be. It would contain a
parlor and promenade deck, with timbered walls in Tudor style, and there would
be special cigar holders in the bathroom. Though Pierpont and Vivian Smith of
Morgan Grenfell both booked spots for the April 1912 maiden voyage, both had
to cancel.
Reports of a North Atlantic disaster reached Pierpont in France on the eve of
his seventy-fifth birthday. “Have just heard fearful rumor about Titanic with
iceberg,” he wired New York. “Without any particulars. Hope for God sake not
true.”21 As the news spread, European reporters tried to track Pierpont down.
When he was finally located in a French chateau, he seemed devastated. “Think
DURING
of the lives that have been mowed down and of the terrible deaths,” he said.22
Over fifteen hundred people perished, including John Jacob Astor IV, George
Widener, the son of P. A. B. Widener, and Benjamin Guggenheim. Survivors
were picked up by the Cunard Line’s Carpathia. It was a crowning disaster for
the shipping trust, unleashing denunciations against both White Star and Morgan
himself. The British-run but American-owned ship was charged with many
deficiencies—an insufficient number of lifeboats, a crew who ignored warnings
of icebergs, a poorly organized rescue, even failure to put binoculars in the
crow’s nest. Newspapers depicted luxurious staterooms laid out for Pierpont and
others as proof of a misplaced emphasis on winning the carriage trade from
Cunard rather than on safety.
Though the Morgan partners had long regarded White Star chairman Bruce
Ismay as abrupt and ill-mannered—he had often threatened to quit—they stuck
by him at first. Jack deplored the public drubbing that Ismay took, cabling the
message that “from telegraphic accounts his treatment New York infernally
brutal.”23 Later, Jack and Pierpont insisted he resign his post. The Titanic was
the last nail in the coffin of the shipping trust. Although the cartel enjoyed a brief
revival as Morgan’s Export Department sent war supplies to the Allies during
World War I, that wasn’t enough to keep it afloat. In October 1914, Jack Morgan
decided it had to default on its bonds. Almost four years after the Titanic went
down, White Star conceded responsibility in court, paying out $2.5 million in
damages.
1912, the crusade against the trusts had already reached a thunderous
crescendo as much of the presidential campaign revolved around Pierpont and
his enterprises. Morgan represented everything that had bothered Americans for
a generation—factories thrown up helter-skelter across the landscape, brutal
mergers, a carnival atmosphere on Wall Street that produced boomlets and busts
in crazy, unending succession. A newspaper cartoon from 1912 shows Pierpont
jovially sitting atop a heap of gold coins and dollar bills, clutching industrial
plants and office buildings in his fist; the legend reads: “I have not the slightest
power.”24 Indeed, the Morgans saw themselves not as financial pirates but as
public benefactors. When Harry Morgan was born in 1900, Jack noted a
resemblance to Pierpont and said he only hoped his son would help as many
people in his lifetime as Pierpont had in his. This sense of virtue contrasted with
the reality of their being the target of public calumny, leaving the Morgan family
angry and bewildered.
Progressive Democrats criticized the trusts as cruel and inefficient and
IN
destructive of the entrepreneurial spirit. Bellwether of the new mood was
Woodrow Wilson, then governor of New Jersey. He accused Republicansupported tariffs of shielding the trusts from foreign competition. In January
1910, while still president of Princeton, he had lectured an audience of New
York bankers, including Pierpont and George F. Baker, on their duties, saying
banking was “founded on a moral basis and not on a financial basis” and chiding
them for penalizing small businesses.25 As Wilson spoke, Pierpont gloomily
puffed on his cigar; afterward, injured, he told Wilson the remarks seemed
directed at him. Wilson, saying he meant no offense, contended that he spoke
merely of principles.
That the Democrats attacked Morgan wasn’t surprising. Far more telling was
how he became a divisive issue among Republicans and helped to split the party
in 1912 over several issues. One involved a Morgan syndicate formed with the
Guggenheims in 1906 to exploit the copper of the Kennecott Glacier in Alaska.
This “Morganheim” group, as it was dubbed, had launched a veritable financial
invasion of the state, buying up steamship lines, coal fields, and canneries and
investing $20 million in a railroad to carry copper ore to Prince William Sound
on the coast. The press lampooned this “second purchase of Alaska,” and one
cartoonist introduced a composite monster called Guggenmorgan.
Such wholesale development of Alaska became a test case of the
government’s attitude toward wilderness areas. It pitted Gifford Pinchot, director
of the U.S. Forest Service and a Teddy Roosevelt holdover, against Secretary of
the Interior Richard Ballinger, a Taft appointee. Pinchot wanted to preserve the
Alaskan wilderness for posterity, while Ballinger thought only the GuggenheimMorgan combination could finance development in such a remote, costly spot.
After public feuding between Pinchot and Ballinger, Taft dismissed Pinchot.
When Teddy Roosevelt, on an African safari, heard about this, it fed his sense of
having been betrayed by Taft.
Toward the end of his second term, Roosevelt had decided not to file an
antitrust suit against the Morgan farm-equipment trust, International Harvester.
In 1911, Taft not only filed such a suit, but later released papers purportedly
showing that George W. Perkins had blocked an antitrust suit against Harvester
back in 1907 by lobbying the head of the U.S. Bureau of Corporations, who
warned Roosevelt not to antagonize the Morgan interests without any proof of
major wrongdoing.
In October 1911, the Taft administration lodged a suit against U.S. Steel in a
further rebuff to the Morgans. “Am horrified at character of bill which beyond
everything I thought possible,” Harry Davison wrote to the London partners.26
To the Paris partners, he denounced the “cheap political methods of Taft and his
associates.”27 What made this especially galling to both Morgan and Roosevelt
was the stress on U.S. Steel’s acquisition of Tennessee Coal and Iron during the
1907 panic. This was the deal that Judge Gary and Henry Frick had gotten TR to
approve during his breakfast. The former president was hypersensitive to
allegations of having been hoodwinked. Defending his actions, Roosevelt said
that the suit against U.S. Steel “has brought vividly before our people the need
for reducing to order our chaotic Government policy as regards business.”28 The
combination of the Pinchot firing and the U.S. Steel and International Harvester
suit helped convince Roosevelt to bolt from the Republicans in 1912 and run as
presidential candidate of the Progressive, or Bull Moose, party.
The issue of Morgan influence still dogged Roosevelt because of the
prominence in his campaign of ex-Morgan partner George W. Perkins. Perkins
was furious about Taft’s trust-busting. He urged Roosevelt to run, covered many
of his preconvention expenses, stage-managed the convention, and chaired the
new party’s executive committee. It was said he traveled so often to Oyster Bay
to see Roosevelt that his chauffeur “knew every pebble in the road, even in the
dark.”29 Among Roosevelt’s Progressive followers, there lurked residual fear
that Pierpont had planted Perkins in the campaign. But Perkins had left the bank
on bad terms, and this seems unlikely. The 1912 split between Taft and
Roosevelt brought to power the man who had lectured Pierpont on his moral
duty: Woodrow Wilson. Meanwhile, the U.S. Steel suit miscarried, and
International Harvester had to divest only three small subsidiaries.
The intellectual and political leap most damaging to the House of Morgan was
a spreading notion that a Wall Street trust had created the industrial trusts and
governed their subsequent destiny. Minnesota congressman Charles A.
Lindbergh, Sr., father of the future aviator, coined the title Money Trust,
describing it as the most sinister trust of all. Senator George Norris later said of
Lindbergh’s attack on the Money Trust that “the gentleman from Minnesota is
entitled to more credit than any other member.”30 The Wall Street Journal
correctly noted that the Money Trust was just a code name for Morgan. Legions
of young muckraking reporters fanned out across Wall Street and rooted out
insidious banking connections. Aided by his young assistant, Walter Lippmann,
Lincoln Steffens exposed a web of links among ostensibly competitive New
York banks. His exposes in Everybody’s magazine termed Pierpont “the boss of
the United States.”
During the summer of 1912, swollen Wall Street power was a hot issue at the
Democratic National Convention. In a hell-raising speech, William Jennings
Bryan introduced a resolution stating opposition “to the nomination of any
candidate for president who is the representative or under obligation to J.
Pierpont Morgan, Thomas F. Ryan, August Belmont, or any other member of the
privilege-hunting and favor-seeking class.”31 Wilson was more circumspect.
While refusing contributions from Morgan, Belmont, and Ryan, he made
exceptions for such financial notables as Jacob Schiff and Bernard Baruch. In
accepting the nomination, Wilson said, “A concentration of the control of credit .
. . may at any time become infinitely dangerous to free enterprise.”32 That
summer, he was tutored in economics by lawyer Louis Brandeis, who had
combated Morgan control of the New Haven Railroad for several years.
Financial reform would form a major part of Wilson’s campaign.
Congressman Lindbergh introduced a resolution in the House calling for a
congressional probe into the concentration of power on Wall Street. The
resulting 1912 hearings of the House Banking and Currency Committee were
commonly known by the name of subcommittee chairman Arsene Pujo, a
Louisiana Democrat, and they got into high gear after Wilson’s victory in
November 1912. Pierpont Morgan and his friends, colleagues, and partners were
to be the star witnesses.
The Pujo hearings are always portrayed as Pierpont’s martyrdom, the public
confrontation that led to his death. Of equal relevance to our story is their
haunting effect on Jack Morgan. He had coped with the fear of his overpowering
father by resorting to awe-struck worship. As Pierpont returned the affection in
later years, Jack’s gratitude contained an extra element of relief, and he deeply
resented the blistering political attacks against his father. A new bitterness, a
darker shading, crept into his letters: “As to attacks on the Senior,” he wrote
Vivian Smith, “. . . owing to a laborious and prolonged press attack . . . in the
public mind J.P.M. is no longer a benefactor, or a citizen who would be a credit
to any country, but is an ogre lying in the background, and always ready to
devour.”33 “The politicians that run our two countries appear to have been seized
with a madness,” he told Grenfell. “Our country is full of hatred and bitterness
and talk.”34
At first, Jack regarded the Pujo investigation as a “nuisance.” He took heart
from the opinion of Morgan lawyer, Francis Stetson, that as a private bank they
could withhold their books and refuse testimony. Jack even fancied Pierpont
might lay out some constructive measures for Pujo’s consideration. But in late
April 1912, the committee chose as its counsel Samuel Untermyer, a rich,
shrewd New York trial lawyer whose pedigree collies had once beaten Pierpont’s
in competition. Untermyer had already railed against the Money Trust, and Jack
was aghast: “Investigation will probably proceed now on as unpleasant lines as
can be arranged,” he cabled his father.35 The hearings would sharpen Jack’s
hostility toward Jews, reporters, Democrats, reformers—all those troublemakers
who stirred up the populace. Scarred by the experience, he would grow
disenchanted with democracy and what he referred to as America’s “amateur
Government.”36
The hearings occurred in December 1912, just as Pierpont hoped to wash his
hands of worldly cares. The money kept rolling in—he was making about $5
million a year—and the bank under Jack and Davison almost ran itself. Pierpont
was probably more au courant on Egyptian excavations than on Wall Street
underwritings. At first, he brusquely said he would testify alone in Washington.
But on this cusp of the Diplomatic Age, a new accountability was expected, and
bankers had to tend their images more prudently. The new team at 23 Wall
adopted an aggressive attitude toward public relations dramatically at odds with
historical reticence.
Silence was Wall Street’s golden rule of conduct. Its leading exemplar was
Pierpont’s pal George F. Baker of the First National Bank, whose mutton-chop
whiskers and gold watch chain across his paunch made him a prototypical
Victorian banker. His bank was as mysterious as 23 Wall itself. Known as the
Sphinx of Wall Street, Baker was director of more than forty companies. He
gave his first newspaper interview in 1863 and not another until 1923, when a
young woman said she was promised a job if she gained access to the reclusive
Baker. Breaking his silence, he said, “Businessmen of America should reduce
their talk two-thirds. Everyone should reduce his talk. There is rarely ever a
reason enough for anybody to talk.”37 By then, Baker’s fortune was estimated at
between $100 and $300 million. He would richly endow the Harvard Business
School, in part through the intercession of Tom Lamont.
As a private merchant, Pierpont felt no obligation to inform the public and
never hired a publicist. Now a new generation of Morgan partners took charge of
a public relations offensive. Not only was Pierpont coached for the hearings by
Davison and Lamont, but the bank hired its first publicist. It was the ideal
moment for that quintessential banker of the new age, round-faced smiling Tom
Lamont. He laid out a secret plan, approved by Pierpont, that would govern
Morgan public relations for a generation. To improve the bank’s image, Morgan
partners would meet with selected reporters, stay in touch with publishers,
monitor newspapers, contribute articles, and privately protest critical articles to
editors.
Lamont’s publicity operation for the Pujo hearings went beyond the lone
publicist usually mentioned. An associate of his named Brainerd bought the big
Maclures Newspaper Syndicate, which sold material to newspapers across
America; this would be their vehicle for countering Pujo. “Our idea is for
Brainerd to continue this strictly sub rosa,” Lamont cabled Davison, who replied,
“Much pleased learn of Brainerd’s purchase. Find Senior and others here much
impressed with the importance of doing something promptly. We all agreed it is
most important have publicity man put to work sub rosa at once on money trust
investigation.”38 This flowered into a full-blown scheme for entering publishing.
Along with Wall Street friends, the Morgan partners planned to buy papers in
major cities—Washington, Chicago, and New York—and purchase two
newspaper groups that sold inserts to papers around the country. This part of the
campaign apparently lapsed, as did negotiations to buy the Washington Post. But
the moves reflected a new wish to shape opinion and emerge from the old
Morgan cocoon of secrecy.
Instead of going alone to Washington, as he first hoped, Pierpont headed a
sixteen-person entourage. The morning of the hearings, he emerged from a big,
high-topped limousine and marched up the steps of the Capitol in striped pants, a
velvet-collared coat, and silk top hat, grasping a cane. An immense crowd ringed
the block: Pierpont was the most famous banker on earth. He was flanked by his
daughter Louisa, her hands stuffed deep in a fur muff and her mouth tight with
prim disapproval, and Jack, who wore a derby hat, his black mustache flecked
with gray. As Pierpont sat in the hearing room, he wore the tragic mask of an old
clown, his head mostly hairless, his nose bulbous and grotesquely gnarled, his
posture erect and stubbornly proud.
The Pujo hearings are celebrated for Pierpont’s triumphant retorts and spirited
defense of his business honor; in a moment, we shall hear the well-worn phrases.
But let us first note the awesome Morgan power that was revealed, lest the
Money Trust theorists seem malcontents. Some 78 major corporations, including
many of the country’s most powerful holding companies, banked at Morgans.
Pierpont and his partners, in turn, held 72 directorships in 112 corporations,
spanning the worlds of finance, railroads, transportation, and public utilities. In
this era of relationship banking, board seats often meant a monopoly on a
company’s business. During the previous decade, the House of Morgan had
floated almost $2 billion in securities—an astronomical figure for the time.
The Money Trust hysteria stemmed from a wave of bank mergers; Wall Street
was snowballing into one big, Morgan-dominated institution. In December 1909,
Pierpont had bought a majority stake in the Equitable Life Assurance Society
from Thomas Fortune Ryan. This gave him strong influence over America’s
three biggest insurance companies—Mutual Life, Equitable, and New York Life.
Although he subsequently “mutualized” the Equitable and sold it to
policyholders, the potential for abuse seemed terrifying.
Pierpont also controlled several New York City trusts through that old trick
from railroad days, the voting trust. His Bankers Trust had taken over three other
banks. In 1909, he had gained control of Guaranty Trust, which through a series
of mergers he converted into America’s largest trust; it had two Morgan partners
on its voting trust. As a director of both Bankers Trust and Guaranty Trust, Harry
Davison blithely claimed that Morgans had no more control over the two banks
than over the Pujo Committee itself. But Morgan records reveal a distinctly
proprietary tone toward the banks. When Davison vacationed, for instance,
Lamont dashed off such memos as “Banking matters—everything running along
smoothly and successfully at the Bankers. . . . At the Guaranty Trust things are in
good shape.”39 Besides these Morgan-controlled trust companies, the core
Money Trust group included J. P. Morgan and Company, First National Bank,
and National City Bank. Over the National Bank of Commerce, America’s
second biggest, Pierpont had such influence that it was styled “J. Pierpont
Morgan’s bank.”40
Wall Street bankers incestuously swapped seats on each other’s boards. Some
banks had so many overlapping directors it was hard to separate them. Five of
nine Chase directors were also First National directors, giving George F. Baker
control over Chase. The banks also shared large equity stakes in each other.
Pierpont was the biggest outside shareholder in Baker’s First National Bank.
After the 1907 panic, Pierpont also took a large block of National City stock and
put Jack on its board. The public could be forgiven for suspecting that these
“Morgan banks” avoided competition and exercised veto power over new
entrants to the capital markets.
In part, the new financial giants resulted from the stupendous scale of
industrial financing. Business gravitated to New York as companies became
national in scope. For instance, in 1906 J. P. Morgan and Company captured
American Telephone and Telegraph’s business from Boston’s Kidder, Peabody,
which had marketed AT&T bonds in New England but couldn’t handle its new
need for national financing. Banks had to grow with their customers, and the
industrial trusts created a Money Trust as much as the other way around.
Similarly, with large-scale foreign financing in China, Latin America, and
elsewhere, Washington had forged Wall Street banks into an instrument of
statecraft but was then dismayed when they cooperated at home.
Why didn’t banks just merge instead of carrying out the charade of swapping
shares and board members? Most were private partnerships or closely held banks
and could have done so. The answer harked back to traditional American
antipathy against concentrated financial power. The Morgan-First NationalNational City trio feared public retribution if it openly declared its allegiance. In
1911, the group thought of merging the Bank of Commerce and Chase National
Bank, but the move was vetoed by National City president James Stillman. As
Jack had cabled Pierpont, “His objection arises from his feeling that it is better at
present not to call attention to the great power of trio, which might increase
public sentiment against that power throughout United States. . .. None of the
trio wishes further large investment in bank stocks for long period.”41
At the Pujo hearings, Pierpont faced a crafty adversary. Short, sharp-nosed,
and mustachioed, Samuel Untermyer was no scruffy radical but an affluent
lawyer who sported fresh orchids in his lapel. A close student of trusts—he had
investigated Equitable Life Assurance and Standard Oil—he had a suave,
insinuating style. Pierpont, by contrast, was rough and uncouth in public. At this
moment of supreme crisis, he reverted to those precepts that Junius had pounded
into his head—the Gentlemen Banker’s Code of the City. The famous exchange
went as follows:
Untermyer: Is not commercial credit based primarily upon money or
property?
Morgan: No, sir, the first thing is character.
Untermyer: Before money or property?
Morgan: Before money or anything else. Money cannot buy it. . . . Because
a man I do not trust could not get money from me on all the bonds in
Christendom.42
Spectators applauded, and businessmen across America stood rapt by this
eloquence. The usually taciturn Pierpont had ennobled banking in an unexpected
way. On Wall Street, banker Henry Seligman said, stock prices leapt 5 to 10
points on the strength of this testimony.43 Pierpont phrased the point more
colorfully: “I have known a man to come into my office, and I have given him a
check for a million dollars when I knew that they had not a cent in the world.”44
However much financiers might cheer such sentiments, to outsiders the
statements sounded like cant preached to dupes. Yet, as we have seen, early
merchant bankers used character and class as crude forms of credit screening;
ever since the Medicis and Fuggers, it was a practical way for private bankers to
protect their precious capital base. Pierpont’s statement was neither as cynical as
critics thought nor as noble as friends imagined. It was a workable business
strategy.
In the history books, Pierpont’s epigrammatic sayings stand out. In the
transcript of the Pujo hearings, however, they appear against an arid backdrop of
denials and monosyllabic grunts, as if he wouldn’t concede the hearing’s
legitimacy. Stamping his cane, Pierpont grew bullheaded and snorted like some
angry god held hostage by heathens. Grudging in his explanations, he was led by
Untermyer into some absurd statements. For instance, Untermyer got Pierpont to
state his rationale for the one-man control of the railroads he sponsored:
Untermyer: But what I mean is that the banking house assumes no legal
responsibility for the value of the bonds, does it?
Morgan: No, sir, but it assumes something else that is still more important,
and that is the moral responsibility which has to be defended so long
as you live.45
This was Pierpont in a nutshell: he represented the bondholders and expressed
their wrath against irresponsible management. But Untermyer saw more than
passive surveillance at stake in the directorships and voting trusts. Besides
representing bondholders, the House of Morgan represented itself to ensure a
steady flow of business. It could intervene to protect its own interests. Because
Pierpont wouldn’t admit this, he spouted gibberish:
Untermyer: You do not think you have any power in any department or
industry in this country, do you?
Morgan: I do not.
Untermyer: Not the slightest?
Morgan: Not the slightest.46
One senses that Untermyer, far from being displeased, gladly used such
intransigence to showcase Pierpont’s arrogance.
Untermyer: Your firm is run by you, is it not?
Morgan: No, sir.
Untermyer: It is not?
Morgan: No, sir.
Untermyer: You are the final authority, are you not?
Morgan: No, sir.47
Despite a mass of circumstantial evidence, the Pujo committee never proved a
Money Trust in a strict conspiratorial sense. Rather, it found a “community of
interest” that concentrated “the control of credit and money in the hands of a few
men, of which J.P. Morgan &. Co. are the recognized leaders.”48 It said that six
houses—J.P. Morgan and Company, First National, National City, and Kuhn,
Loeb along with Boston’s Lee, Higginson and Kidder, Peabody—acted in
concert in sponsoring securities of prime corporations and governments. It was
hard for large companies to market bonds without this group or for rivals to take
business away from them.
The Pujo Committee documented the gentlemanly rules of conduct among
old-line Wall Street banks. They competed, but in a manner as formal and
ritualized as a minuet. They wouldn’t bid against each other for bond issues.
Rather, a single house would privately negotiate a deal and then assign syndicate
allotments to other firms. Over time, these allotments tended to be unvarying for
a particular company. As Jacob Schiff told Pujo, “It was not good form to create
unreasonable interference of competition. Good practices did not justify
competition for security issues.”49 Whether this was a barefaced plot to bar
outsiders or just a natural response to market conditions would be debated for
the next forty years. The issue would not be settled until the Medina trial of the
early 1950s, when the House of Morgan would again be branded the kingpin of
the conspiracy.
The Pujo hearings had one immediate consequence that seemed to threaten
Morgan power. In December 1913, President Wilson signed the Federal Reserve
Act, providing the government with a central bank and freeing it of reliance on
the House of Morgan in emergencies; the new Federal Reserve System was a
hybrid institution, with private regional reserve banks and a public Federal
Reserve Board in Washington. Yet the House of Morgan moved so artfully to
form an alliance with the Federal Reserve Bank of New York that for the next
twenty years it would actually gain power from the new financial system. The
bankers had not yet been tamed.
the Pujo hearings, Jack and his sister Louisa sat with their father in a
private railroad car as he recovered from the strain of his testimony. As soon as
servants had brought their luggage from the hotel, they all returned to New York.
Jack lauded his father’s testimony—thought him “perfectly frank, very helpful to
situation”—but developed a visceral loathing for Untermyer, whom he tagged
the Beast.50 He thought the Pujo hearings a blatant assault on the Morgan bank,
with other bankers only drawn in as a smokescreen. From Yankee pride, both
father and son professed to be immune to the whin-ings of such little men.
Striking a brave tone, Jack said, “We have all here maintained the note which
[Pierpont] struck so well in Washington that he was much too big to be annoyed
by miserable little things like that.”51 The reality, however, was that Senior never
recuperated from the ordeal of this public inquisition.
Pierpont was too thin-skinned to be philosophical about political attacks and
didn’t recognize himself as the ogre of the newspaper cartoons. He thought
himself a generous, paternalistic boss and an avuncular grandfather, not a
bloodthirsty monster. He was baffled by the new public scrutiny of businessmen
and predicted that “the time is coming when all business will have to be done
with glass pockets.”52 He thought Jack might fare better in the new environment.
In his last months, Pierpont possessed a melancholy sense of history as having
passed him by. He told a visitor in 1913, “When you see Mr. Wilson, tell him for
me that if there should ever come a time when he thinks any influence or
resources that I have can be used for the country, they are wholly at his
disposal.”53 Such a time never came.
Fleeing up the Nile with Louisa, Pierpont could find no respite from his
troubles. As always, his ailments were a mass of amorphous symptoms rather
than a definable illness. Louisa privately reported to Jack on his digestive upsets,
depression, insomnia, and nervous attacks. “Bilious attack practically overcome
but result months of strain very apparent now,” she cabled as they sailed to
Luxor.54 Jack—always in the wrong place, always full of yearning—now wished
to join Pierpont. But theirs was no ordinary father-son relationship. A political
succession—no less momentous than a presidential transition—was underway,
and Louisa reported that executive power was being placed in his hands. “Your
suggestion coming yourself has touched and pleased him, but he is anxious you
should remember how much depends upon your being on the spot in New York
—how many interests are in your hands. He is too weak make decision; he
AFTER
wishes leave it you.”55 It was the first time Pierpont had ever explicitly
delegated top authority to his son.
As Pierpont weakened, fresh doctors were shipped out from New York. The
corpulent banker fancied that fresh butter and cream from Cragston might
restore him and asked Jack to send some. The final siege came in a $500-a-day
suite of Rome’s Grand Hotel. News of Pierpont’s terminal illness rattled the art
world, which braced for a general collapse of prices. The ground floor of the
Grand Hotel teemed with art dealers, antiquarians, foppish noblemen, shabby
peddlers—all trying to unload a last painting or statue on the dying financier. So
zealous were their assaults that the New York Times described them as being
“repulsed with the regularity of surf on the beach.”56 Meanwhile, Pierpont’s
condition required that politics and business not be mentioned. He was groggy
but sleepless. Even grains of morphine couldn’t soothe his tormented mind or
slow his racing pulse. On the night of March 31, he grew delirious and mumbled
about his boyhood. Imagining himself back at school in Hartford or Switzerland,
he praised “a fine lot of boys” in his class. Before he died, he said, “I’ve got to
go up the hill.”57 He died shortly after midnight. Within twelve hours, the pope
and 3,697 other people had telegraphed their regrets to the Grand Hotel.
The Morgan partners attributed the death to Pujo. The charge may be
overstated. Pierpont was seventy-five when he died. Almost twenty years before,
worried doctors wouldn’t approve a life insurance policy in his name. He
smoked dozens of cigars daily, stowed away huge breakfasts, drank heavily, and
refused to exercise. If Jack lost weight, Pierpont would grow alarmed. When
Jack began playing squash regularly, Pierpont said, “Rather he than I.”58 From
boyhood, he had been chronically sick, often spending several days in bed each
month. Hardly a period of his life was free of illness and depression. That he
lasted until seventy-five, with his myriad ailments and resolutely bad habits, is
close to miraculous, testimony to a powerful constitution. Then, in his last years,
there were numerous disappointments—the Titanic, the U.S. Steel and
International Harvester suits, Woodrow Wilson s attacks on the Money Trust,
and so on—that may have created unbearable stress.
But at Morgans, everybody knew Untermyer was the murderous scoundrel. As
Lamont told historian Henry Steele Commager, “Within three or four months,
out of a seemingly clear sky, his health failed and after a two weeks’ illness,
from no particular malady, he died.”59 Certainly, the hearings hastened
Pierpont’s death, but who can say they caused it? Nevertheless, the belief was
widespread at the bank and only hardened partners’ feelings toward politicians
and reformers. Jack began to follow Untermyer’s affairs with a morbid curiosity.
When a senator attacked the lawyer in 1914, he fairly gloated: “I enjoyed
reading every account of it . . . and the more I see him caught in the machinery
of his evil deeds, the better pleased I am.”60
How much had Pierpont amassed? Apart from his art collection, his estate
came to $68.3 million, of which about $30 million represented his share in the
New York and Philadelphia banks. (Pierpont’s $68.3 million estate would be
equivalent to $802 million in 1989 dollars.) The value of his art collection was
estimated by the Duveens at $50 million. It was testimony to Pierpont’s
Olympian standing that the release of the figures occasioned some disbelief,
even some pity. Andrew Carnegie was truly saddened by the revelation of poor
Pierpont’s poverty. “And to think he was not a rich man,” he sighed.61 Pierpont’s
fortune didn’t approach those of the great industrialists—Carnegie, Rockefeller,
Ford, or Harriman—and he didn’t quite edge out Jay Gould. One magazine
writer even saw the paltry estate as proof that Pierpont hadn’t profited from
inside information at his disposal.
When Pierpont’s will was disclosed, it contained many surprises. Overflowing
with religious fervor, it had a florid opening, in which he committed his soul into
the hands of Jesus Christ. He distributed money with great liberality. Besides the
Morgan bank capital, lack was bequeathed S3 million outright, the Corsair, the
property at Princes Gate and Dover House, and that inestimable jewel, the
Morgan collection. Daughters Louisa Satterlee and Juliet Hamilton received $1
million apiece, with an extra million thrown in for their husbands. The longsuffering Fanny received Cragston, the Madison Avenue house, a $100,-000
guaranteed annuity, and a $l-million trust fund. She survived until 1924,
faithfully attended by Jack. There was friction in the family regarding Anne
Morgan’s award of $3 million. Since she would have no children and planned to
donate the money to philanthropic activities, some thought she should have
received much less.
For Morgan retainers, it was a red-letter day, fulfilling their most delirious
dreams. Librarian Belle da Costa Greene got her first Morgan bequest of
$50,000—Jack would later match it—plus a guarantee of continued employment
at the library. Dr. James Markoe, who pumped Pierpont with medication during
the 1907 panic, received a $25,000 annuity, which was to revert to his pretty
wife, Annette, should she outlive him. (This bequest, along with legends
claiming that doctors at the Lying-in Hospital married Pierpont’s former
mistresses, kept alive rumors that Annette Markoe had been a mistress of
Pierpont’s.) Even Pierpont’s sailing master, Captain W. B. Porter, received
$15,000. In the most astounding act of paternalism, every J. P. Morgan and
Company and Morgan Grenfell employee received a free year’s salary. (When
the bill came due, Jack paid out $373,000.) There was close to $10 million in
charitable bequests, including $1.35 million to Dr. Markoe’s New York Lying-in
Hospital, $1 million to Harvard, $560,000 to Saint George’s Church, and
$500,000 for the Cathedral of Saint John the Divine in New York City.
By no coincidence, Pierpont’s last rites resembled the Anglo-American tribute
he had arranged for Junius. He turned his own funeral into a last act of father
worship. As Jack said, Pierpont had “left full instructions in regard to funeral
which is to be as like his Father’s as possible.”62 Again, the mourning was
transatlantic, with Pierpont honored by both a memorial service at Westminster
Abbey and the closing of the New York Stock Exchange. At sea, flags of the
shipping trust flew at half-mast. Back in New York, his body lay in state at the
Morgan Library. For the funeral service at Saint George’s, a full complement of
Episcopal bishops—one each from New York, Connecticut, and Massachusetts
—came in response to a summons in Pierpont’s will. Harry T. Burleigh, a black
baritone, the grandson of an escaped slave, and a favorite of Pierpont’s, sang the
hymns. Pierpont was buried in the family mausoleum at Hartford’s Cedar Hill
Cemetery, according to his wishes: “opposite the place where my father’s
remains are interred.”63
Perhaps no other event of the year 1913 received as many lines of newspaper
copy as Pierpont Morgan’s death. Momentarily the critical drumbeat—which
had grown so loud and insistent with the Pujo hearings—was silenced. In
lengthy obituaries, no analogy was too large to encompass the personage who
had just died. The Economist called Pierpont “the Napoleon of Wall Street.”64
The Wall Street Journal said, “Such men have no successors. . . . There were no
successors to Napoleon, Bismarck, Cecil Rhodes or E. H. Harriman, and their
authority was not perpetuated.”65 These articles suggested that the last titan had
died, and the world of banking would never again see a figure of such scope.
From our later perspective, Pierpont Morgan seems large because of certain
characteristics of the Baronial Age. The companies Pierpont Morgan controlled
were weak and primitive by today’s standards, without a vast, highly trained
managerial corps. Many firms had just graduated from the regional to the
national level and needed Wall Street bankers in order to obtain broader
financing. Even the governments Pierpont lent money to were relatively
unsophisticated and lacked the central banks, systems of taxation, and large
treasuries of today. Despite the multinational reach of Pierpont’s empire, his
great exploits—the 1895 rescue of the gold standard, the creation of U.S. Steel,
the cornering of Northern Pacific, the negotiations in the 1907 panic—were
exclusively American in character.
After Pierpont Morgan’s death, the House of Morgan would become less
autocratic, less identified with a single individual. Power would be diffused
among several partners, although Jack Morgan would remain as figurehead. In
the new Diplomatic Age, the bank’s influence would not diminish. Rather, it
would break from its domestic shackles and become a global power, sharing
financial leadership with central banks and governments and profiting in
unexpected ways from the partnership. What nobody could have foreseen in
1913 was that Jack Morgan—shy, awkward, shambling Jack who had cowered in
the corners of Pierpont’s life—would preside over an institution of perhaps even
larger power than the one ruled by his willful, rambunctious father.
PART TWO
The Diplomatic Age
1913-1948
CHAPTER NINE
METAMORPHOSIS
IN early 1912, the House of Morgan bought 23 Wall Street and its property
from Elizabeth Drexel. The hallowed soil fetched the highest price per square
foot ever recorded for a real estate deal. A month after Pierpont’s death,
wrecking crews demolished the old brownish-gray Drexel Building to clear the
way for a new marble palace. Never ones to stint, the Morgan partners bought a
quarry of Tennessee marble to guarantee a supply of high-quality construction
material.
Pierpont had insisted the new building retain a catercorner entrance, facing
both Broad and Wall streets. On his last trip to Rome, he had planned to bring
home triumphal columns to frame the entrance. Although he never set eyes on
the Italian Renaissance building, designed by Trowbridge and Livingston, it
preserved his spirit. On December 30, 1913, Jack set the cornerstone, which
contained a special copper box. Sealed inside, like saintly relics, were Pierpont’s
will, a copy of his Pujo testimony, the articles of partnership, and an appropriate
merchant-banking touch—the form used for letters of credit. It was a homage to
the past even as the firm moved ahead.
Oddly, the angular building, completed in 1914, was smaller than its
predecessor. “I wonder what people will think in 300 years or less as to the
progress made by Morgans in 35 years,” Teddy Grenfell said slyly to Lamont. In
shrinking the building’s size, the firm expelled other tenants, keeping the Corner
to itself. Dwarfed by skyscrapers, the short building made extravagant use of
such precious land, as if the bank wished to flaunt its immunity to everyday
concerns of cost.
The new building was compact and mysterious, reflecting the bank’s penchant
for privacy. Curtains always shrouded its deeply inset windows. As the Times
said, “The men of the House of Morgan keep in the background as far as
possible. They shun the limelight as they would a plague.”1 Whereas the old
Drexel building had the firm’s name over the doorway, the bank now reverted to
London tradition and posted no name.
The interior reflected the layout of London merchant banks, with an open
banking floor on the street level. Set off by a marble-and-glass partition, a
double row of partners’ rolltop desks and brass spitoons stood along the Broad
Street side. There were dark wood walls and mosaic panels. Fires blazed at the
back of the partners’ room, beneath a portrait of Pierpont. Upstairs, each partner
had a private office, lined in English oak, and a fireplace. The upper floors
housed a private dining room and Jack Morgan’s barber shop.
When Jack arrived for his inaugural day as the new Senior, his office was
heaped with roses. Now forty-six, he must have taken charge with some
trepidation. He was milder, less truculent than his father—he griped and
grumbled where his father barked. One journalist wrote that there was in Jack “a
suavity . . . that was missing in his father,” and Wall Street scuttlebutt compared
him with Pierpont unfavorably.2 As we have seen, his confidence hadn’t been
bolstered by his father. And for a Morgan partner, he had been mixed up in a
surprising number of fiascoes, including the shipping trust. When he solicited a
gold loan in Paris during the 1907 panic, the Banque de France rebuffed him—a
hard knock for Junius Morgan’s grandson. Wall Street wits said that after
returning to New York in 1905, Jack’s chief innovation at the Corner was
introducing English afternoon tea. He was seen as pleasant, friendly, but secondrate.
Jack handled the succession in an intelligent, self-protective way. He did what
Pierpont could never do—presided in a relaxed manner, delegating authority to
Davison, Lamont, and others. Not hampered by his father’s flaming temper or
ego, he didn’t feel threatened by talented men of his own age and prided himself
on his stable of prima donnas. The way he restructured the bank suited the needs
of the Diplomatic Age, which required a team of strong, independent partners to
undertake government missions. The general caliber of the partners would
improve measurably under Jack’s tutelage.
Decisions were reached by consensus. Where Pierpont held no regular
meetings until the 1907 panic, Jack scheduled daily partners’ meetings in the
informal style of a British merchant bank. No stenographer was present, and no
minutes were kept, only lists of attending partners. Where Pierpont preferred
subservient partners, Jack would create a bank almost top-heavy with executive
talent. Whether from insecurity, shrewdness, tact, or sheer laziness, he put
together a symphony orchestra that could, if necessary, play without a conductor.
Even with this looser grip on the business, Jack could still yank the leash and
take control. He held $32.3 million in Morgan capital, which was the bank’s
major cushion. He also reserved his father’s extraordinary powers, which
included the right to allocate profits among partners, arbitrate disputes, fire
partners, and determine a fired partner’s departing share of capital. These were
the trump cards in a private partnership. So long as he was alive, Jack insisted
upon certain central Morgan values—such as conservative management,
avoidance of speculation, and loyalty to Britain—that set invisible but real
fences around his lieutenants.
Financial partnerships are combustible affairs that frequently blow up as a
result of personality clashes and disputes over money. Yet the House of Morgan
was always marked by harmony among the partners. If Jack Morgan was devoid
of unhealthy egotism and bashful to a fault, his lieutenants, Harry Davison and
Tom Lamont, were genial and deferential toward him. A tacit bargain was struck:
they would treat Jack with impeccable courtesy, bow to his wishes on important
matters, and venerate the Morgan name. In return, they would enjoy day-to-day
executive control. Had there been management consultants in those days, they
couldn’t have devised a better or wiser compromise.
This wasn’t a polite charade in which the partners smirked behind the boss’s
back; they had genuine affection for Jack. Years later, Morgan partner and then
chairman George Whitney would say:
I always find that I have to guard myself because of a fear that I will sound soft
and foolish, but he was a great gentleman, a cultured gentleman, if you know
what I mean . . . and he’d deny it like hell if he ever heard me say it to anyone.
He was a simple and just as sweet a man as you ever saw. . . . As I say, he was
never given credit, because he was shy, but he kept that bunch of primadonnas
working, the partners, and he was the unquestioned boss and there was never any
argument about it. . . . He wasn’t a buccaneer like his father, but he was a hell of
a guy.3
Had there been rebellion in Jack’s nature, it would have surfaced after
Pierpont’s death. Instead, he plunged into a Morgan specialty—father worship.
Even after having nursed his mother through her dreadful marriage, he cared for
the Hartford grave site of Mimi Sturges Morgan, Pierpont’s first wife. With his
New England sense of self-reliance, he didn’t think it sporting or fair to blame
one’s parents for one’s troubles; he was no more prone to introversion than
Pierpont had been. In 1916, he said of Charles Francis Adams’s autobiographical
work, “The depressed and gloomy point of view, and the anger at everyone who
had anything to do with his bringing up, because he feels himself not a complete
success, are rather distressing.”4 And he docilely accepted the dynastic nature of
merchant banking, nudging his eldest son, Junius, into the bank just as he was
pushed by Pierpont. “Junius is not going into the firm,” he told a friend, “but he
is coming into the office to see if he is fit to go into the firm later on, which I
hope and trust he will be.”5
In many respects, Jack’s life evolved into an eerie act of homage as he tried to
metamorphose into his father. If children identify with parents to relieve their
fear of them, as some psychologists suggest, then Jack must have had a great
deal of fear, for he tried very hard to resemble his father. As a New Yorker
columnist said, “His similarity to his father in thought and outlook is almost
weird.”6 To encourage the confusion, Jack dropped the Jr. from his name after
Pierpont’s death—a common practice—and took to being called Senior—the
name that had been Pierpont’s. Only Tom Lamont and, later, Russell
Leffingwell, called him Jack.
That Jack successfully mimicked Pierpont had much to do with their sheer
resemblance. There were differences: Jack’s mustache was smaller and trimmer
than Pierpont’s walrus affair, and his eyes were gentler and less forbidding than
the Senior’s. Jack also had a peculiar stoop, his shoulders hunching forward as if
he were muscle-bound or ducking to pass through a low doorway. But the
similarities were more striking. Both were six foot two, broad shouldered, and
burly—cartoonists scarcely had to alter their sketches of the pear-shaped, tophatted tycoon. Jack even wore Pierpont’s bloodstone on his watch chain—a
favorite touch of the radical caricaturists, who had added it to the iconography of
paunchy plutocrats. The strong Morgan nose remained, though without
Pierpont’s skin disease.
Contemporaries said the two J. P. Morgans even walked and talked alike.
Occasionally, one sees a snapshot of “J. P. Morgan” threatening a reporter with
his stick and momentarily cannot tell which Morgan it is. Both were high-strung,
thin-skinned, moody, and prone to melancholic self-pity. Deeply emotional, they
feared their ungovernable passions. A gruff, snappish way of relieving tension
and dealing with disappointment was also conspicuous in both.
It is fascinating to follow Jack as he assumed his father’s trappings. A
sampler: In 1915, he wrote a Piccadilly hat shop for “another hat (felt) of the
same shape as those you used to make for the late Mr. Pierpont Morgan.”7 Like
his father, he went for his London tailoring to Henry Poole and Company of
Savile Row and to Brooks Brothers in New York. He adopted his father’s yen for
gigantic cigars, ordering five thousand at a time. As his caterer, he retained Louis
Sherry, who distributed to favored partners fifty bottles of brandy, one hundred
of Musigny, and one hundred of Madeira at a clip. He maintained Pierpont’s
tradition of sending chests of Chinese tea to friends at Christmastime, wrapped
in pretty paper covers. This special Morgan blend, Mandarin Mixture, came
from a tiny garden on an inland Chinese plantation. On Christmas Eve, Jack
perpetuated the ritual of reading to Morgan children from Dickens’s Christmas
Carol—using the author’s own manuscript.
In religion, Jack was pious but less mystical than Pierpont. He, too, became a
vestryman of Saint George’s Church, sailed with bishops aboard the Corsair III,
and resumed Morgan patronage of the Episcopal church, financing a revision of
the American Book of Common Prayer. The New York Yacht Club got a new
Commodore J. P. Morgan, while the Harvard Board of Overseers and the
Metropolitan Museum of Art also got a new J. P. Morgan. New York City’s
orphans lost nothing from generational change, Jack made up the annual
$100,000 deficit at the New York Lying-in Hospital. (In view of his happy
marriage, he was spared the cruel barbs that greeted Pierpont’s generosity.) As a
philanthropist, Jack permitted small variations, so long as Morgan themes were
preserved. Where Pierpont underwrote Egyptian excavations, Jack specialized in
Aztec digs for the American Museum of Natural History. More an Anglophile
than his father, Jack joined Lamont in an anonymous donation to Britain’s
National Trust to buy the land surrounding Stonehenge, saving the area from
development.
Before Pierpont’s death, Jack hadn’t shown a particular interest in the library.
But soon he developed his father’s habit of leafing through its treasures each
morning. Jack lacked the capital to mimic Pierpont’s sweeping romps through
European culture—Pierpont’s own collecting had precluded that—so he
concentrated instead on books and manuscripts, his specialty being incunabula,
books printed before 1500.
Under Pierpont’s strict instructions, Jack retained librarian Belle da Costa
Greene, who never fully recovered from Pierpont’s death; over time, Greene’s
bright banter would enchant the son as much as it had the father. And over time
another amusing generational resemblance between the two became evident—
the bullheaded way in which the Morgan men cornered the market in one artist
after another. In 1905, Jack had given his father a manuscript version of
Thackeray’s Vanity Fair and later rounded up remaining Thackerays on the
market. Then he marched on Tennyson, eliciting a memorable remark from
Greene: “In regard to the Tennyson items which, personally, I loathe, it is a
question of perfecting your already very large and fine collection of
imbecilities.” No less than Pierpont, Jack found the librarian’s fresh mouth
piquant. He replied, “I reluctantly confirm that we ought to have the Tennyson
idiocies.”8
With less of a gypsy nature than Pierpont, Jack concentrated on creating
stately residences. In 1909, he paid $10,000 for barren East Island off the North
Shore of Long Island, near Glen Cove. To make the grounds fertile, he had
manure shipped in by the bargeload. And after constructing a stone bridge to the
mainland, Jack built a $2.5-million red-brick chateau, modeled after Denham
Place, a Buckinghamshire mansion, and called Matinicock Point (sometimes
spelled Matinecock). Set on an estate of 250 acres, the mansion was graced with
a columned entrance, dormer windows, and high chimneys. It had forty-five
rooms in all, including twelve bedrooms, thirteen bathrooms, eighteen marble
fireplaces, a sixteen-car garage, and even a small gymnasium.9 After Jack and
Jessie moved there in 1911 (while still retaining their Madison Avenue
brownstone), Pierpont had twitted his son about his proximity to Teddy
Roosevelt’s estate. “I too regret my nearness to Oyster Bay,” Jack cabled back,
“but expect outlive the troublesome neighbor.”10 Jack commuted to Wall Street
by water each morning, pulling up at the New York Yacht Club’s pier at East
Twentieth Street.
Jack was an inveterate hunter and loved the world of English country houses.
With his friend Eric Hambro, Jack bought Gannochy, a shooting lodge with
seventeen thousand acres of highland moors in east central Scotland. It was a
romantic spot, covered with heather and crossed by deep gorges and salmonfilled streams. Each August, Jack joined the merchant bankers and aristocrats
who headed north to Scotland for grouse shooting. His guests sometimes bagged
up to a thousand birds a day, while Jack’s daughters, watching from an upstairs
lodge window, cheered every missed shot. The Gannochy shoots, which later
would include King George VI, helped to seal a new intimacy between England
and the House of Morgan.
Jack and Jessie Morgan spent up to six months of each year in England.
Fortune magazine left a portrait of their assimilation into British life, starting
with their first stay, from 1898 to 1905: “They lived for eight years in England
not as exiled Americans but as all but naturalized Englishmen. Mrs. Morgan by
background and training took easily to English country ways, English houses,
English gardens—the whole domestic economy of a life of which the life in
Boston was merely a more meager copy. And her husband found . . . that the life
of a gentleman and an Episcopalian could be more gracefully and naturally led
in London than on Wall Street in New York.”11
Socially, Jack shared his father’s snobbery and disdained the hurly-burly of
American life. He never tried to broaden his social sphere or enlarge his
sympathies. He might switch from the Union Club to the Union League Club,
but that was the extent of his social experimentation. He had a special horror of
arrivistes. Summering in Newport might be fine for others, but for Jack the place
was “swamped by the horrid vulgar lot who make or rather ruin the reputation of
it.”12
The most conspicuous difference between Jack and his father was in their
attitude toward the sexes. Both frowned on divorce among partners or employees
and preferred male secretaries in the bank. (Until about the 1940s, women who
married had to leave the bank, a regulation that led to several secret marriages.)
But Jack was also puritanical in private—it is hard to imagine him swearing or
telling off-color stories—and he once blushed to tell his children the facts of life.
Perhaps reacting to his father’s lechery, he was courtly with women, and he
remained absolutely faithful to Jessie, a pretty, somewhat matronly woman.
Jack and Jessie’s marriage was almost suffocatingly close. Jessie filled that
little spot of doubt inside her husband. Confident and decisive, she propped up
his ego, and he relied implicitly on her judgment in many matters. Jessie was
strict with the four children and ran the estates with a firm, expert hand. She was
cool and businesslike, and her daughters found it easier to take their problems to
their father. But to Jack, Jessie was the supportive presence who compensated
for his lifelong insecurity and guaranteed he would be spared his father’s terribly
loveless fate.
the new lord of the House of Morgan, Jack instantly faced two crises
inherited from Pierpont. Coming on the heels of the Pujo hearings, they would
further embitter him toward the public and confirm his sense of national
ingratitude toward Morgan bounty. The first crisis involved his father’s art
collection, whose disposition Pierpont had left to him in his will.
Originally, most of the paintings and decorative objects were housed at
Princes Gate, which, for lack of sufficient space, Pierpont had despaired of
turning into a museum. (The books and manuscripts had always been under
Belle Greene’s care in New York.) And until 1909, American import duties made
it prohibitively expensive to bring home this “foreign” wing of the Morgan
collection; then Pierpont, who was big enough to move congressional mountains,
spurred the enactment of a duty-free exemption for works of art more than one
hundred years old. The decision to transport the collection was hastened by
another consideration: if it were in London when Pierpont died, his heirs would
have to pay heavy death duties. So in 1912, thousands of pieces of art were
packed in giant crates and shipped to New York. To please Morgan, U.S.
customs inspectors were sent to London to speed the process.
Since Pierpont had expressed a desire to keep his collection together, its
eventual destination was a matter of great speculation. At first, he had
bequeathed it to the Metropolitan Museum, of which he was president. As a
precondition, however, he asked New York City to appropriate money for a
special Morgan wing. This was a rich man’s way of asking for a token of respect
AS
and gratitude. Instead, it provoked a vituperative campaign, spearheaded by the
Hearst newspapers and some city officials, who excoriated Pierpont for not
providing the funds himself.
In this year of the Money Trust campaign, taxpayers were ripe for Morganbaiting and prepared to believe that his bank account was bottomless. Stung by
the campaign, Pierpont told shocked Metropolitan officials in late 1912 that they
might not receive the collection after all. Easily injured, he could be sulky and
childish when his pride was hurt. So he left the final decision to Jack. It would
be his son’s first large posthumous decision. Under a new state law, Jack had two
years from the time of Pierpont’s death to donate the art if he wished to receive
an exemption from the inheritance tax.
While pondering his decision, Jack temporarily permitted the collection to be
exhibited at the Metropolitan Museum. It was a breathtaking event that brought
together 4,100 works from London and New York—the one time the complete
Morgan collection could be viewed in its entirety. America had never seen
artistic riches in such profusion. The word exhibition didn’t capture its scope: it
was like the unveiling of a major museum, revealing the fruits of the most
frenzied buying spree in art history. There were 550 enamels, 260 Renaissance
bronzes, nearly 700 pieces of porcelain from the eighteenth century, 39
tapestries, 900 miniatures, more than 50 European paintings. By glimpsing these
treasures, the public developed not only a fuller sense of their worth but a
possessive feeling toward them as well.
Now Jack had to weigh the competing claims of his bank and American
culture. He and other Morgan partners recalled the unpleasant suspense each
year as they wondered whether the Senior’s balance would cover the bills
pouring in from London and Paris. And now Jack wondered whether he could
cover the $3 million in inheritance taxes and the $20 million in individual
bequests mandated by Pierpont’s will. The approximately $20 million in liquid
assets in the estate simply did not match the scale of Pierpont’s generosity. While
he required liquid capital for bequests, estate taxes, and his business, Jack held,
instead, mostly illiquid art masterpieces. What to do?
The answer came in February 1915 and scandalized the art world: Jack
decided to dismantle the collection. First he sold the Chinese porcelains for $3
million to Duveen Brothers, who resold them to Henry Clay Frick. Then
Fragonard’s magnificent Progress of Love, four panels executed for Mme du
Barry, went for $1.25 million, also to Frick, who adorned a room of his Fifth
Avenue mansion with them. Frick’s new ascendancy as foremost American
collector, heir to Pierpont, evidently pleased Jack, who said he had been kinder
to him than any of Pierpont’s other business associates. Sugar baron H. O.
Havemeyer bought the Vermeer that had captivated Pierpont. “It seems we need
the money,” Belle Greene sighed.13
By the end of this avalanche of sales—during which Greene battled
tenaciously for higher prices—$8 million worth of art had changed hands at
handsome prices. Pierpont’s death hadn’t devastated the art market—the new
fortunes being amassed by munitions makers in the World War, fortunes often
awarded by the Morgan bank itself, picked up the slack. Greene’s friend Bernard
Berenson commented that Pierpont might be dead, “but his soul goes marching
on.”14
The cognoscenti were horrified by the sale, which they portrayed as a brutal,
unfeeling massacre of the world’s premiere art collection. Profiting from it,
Joseph Duveen nonetheless classified the breakup “with that other great artistic
tragedy, the dispersal by the Commonwealth of the carefully chosen treasures of
King Charles the First.”15 As a salve for bruised feelings, the Metropolitan was
given 40 percent of the collection, a monumental bequest of about seven
thousand objects, including Raphael’s Colonna Madonna, which was the world’s
most expensive painting when purchased by Pierpont for £100,000. For all the
disappointment, this was the biggest windfall in the museum’s history, forming
the heart of its medieval collection.
Pierpont’s literary collection—about twenty thousand items, including
Gutenberg Bibles, papyruses, and manuscripts by Keats, Shelley, Swift, and Dr.
Johnson—stayed intact at the library, as did many splendid oddities, such as
Marie-Antoinette’s fan, which Jack would give to the French government in
1925. The other major beneficiary was the Morgan Memorial at the Wadsworth
Atheneum in Hartford, which Pierpont had built in tribute to Junius. (As
Pierpont had insisted, portraits of him and Junius hung side by side at the head of
the museum’s grand staircase.) In 1917, Jack gave the museum such a massive
bequest of ancient bronzes and European decorative arts—more than thirteen
hundred items—that the Wadsworth at once leapt into fifth place among
American museums.
Instead of explaining his decision, Jack sprang it unexpectedly on the public.
Then he retreated into a touchy silence, heeding Pierpont’s dictum of never
answering press attacks. This made him seem guilty and defensive. One can only
speculate as to the reasons behind his self-defeating silence. As a private banker,
he would have refrained from any statement suggesting a need to shore up the
bank’s capital—no secret was more closely guarded by merchant bankers than
their capital position. At this point, the House of Morgan had never been
examined by regulators or revealed a balance sheet; Jack wasn’t about to discuss
Morgan capital in public. It might have also been hard to explain the urgent need
for money without indirectly criticizing his father’s prodigality. If blame was to
be meted out, it probably should have been directed toward Pierpont, whose
collection had outpaced any provision for its storage and display. It was
Pierpont, not Jack, who failed to provide for both bank and art collection.
Although he did it in boorish, public-be-damned style, Jack may only have been
setting things’ aright.
second crisis shadowing Jack’s first days at the helm involved the New
York, New Haven and Hartford Railroad. Joseph Morgan—Pierpont’s
grandfather—had sponsored one of its predecessors, giving it a special place in
the family. Going on the road’s board after 1892, Pierpont came to rule it with a
mixture of sentimentality, explosive rage, and willful blindness almost without
equal in Morgan annals. In 1903, he had brought in Charles S. Mellen—called
“the last of the railway czars”—to run the New Haven. Mellen had a smooth,
domed head, white mustache, and a cold, sarcastic manner that made him the
most hated man in Boston. The New Haven would be a folie a deux for Morgan
and Mellen, bringing out the worst in both in their contempt for the public.
The two planned to take over every form of transportation in New England
and wantonly usurped steamship lines, interurban electric trolleys, rapid transit
systems—anything that threatened their monopoly. The New Haven gobbled up
every railroad in Rhode Island, Connecticut, and southern Massachusetts. The
centerpiece of their plan was the purchase of the Boston and Maine Railroad in
1907. This was so controversial that Pierpont and Mellen met with President
Roosevelt in order to forestall antitrust problems. Though the president offered
his tacit consent, he later confessed that he had gone “beyond the verge of
propriety in condoning offenses” committed by the New Haven.16
The New Haven’s expansion was both unwise and unscrupulous. As it paid
exorbitant prices to swallow up competitors, its debt load grew crushing. The
railroad became a bloated monster of a holding company, with 125,000
employees in 336 subsidiaries. To hide its financial chicanery, it set up hundreds
of dummy corporations, some headed by mystified clerks who were periodically
called in and told to sign contracts. The House of Morgan made enormous
profits from this corporate maze, booking nearly a million dollars in
commissions from an incessant flow of stocks and bonds. Meanwhile, the New
Haven’s real future competitor—the automobile—escaped the wide net that
Pierpont had flung over New England transportation.
Unbeknownst to the public, the House of Morgan itself was queasy about
THE
Mellen’s stewardship. In May 1908, George Perkins wrote to Pierpont, “I still
feel, as I have for a couple of years, that Mr. Mellen is getting the New Haven
road into considerable of a muddle by his financial methods, and this, I think, is
becoming more or less the general opinion.”17 The bank began quietly to sell off
its securities in the road.
Unfortunately for Pierpont’s image, Mellen was a vocal admirer and later said
he never undertook any initiative without first consulting Pierpont. “I wear the
Morgan collar,” he boasted to reporters, “but I am proud of it. If Mr. Morgan
were to order me tomorrow to China or Siberia in his interests, I would pack up
and go.”18 He would leave an indelible portrait of Pierpont as an autocratic
board member. “It was Mr. Morgan’s way, when he wished to cut opposition and
discussion short, to fling his box of matches from him, bring his fist down, and
say, ’Call a vote. Let’s see where these gentlemen stand.’ ”19 Other board
members, Mellen said, cowered and submitted to him.
The Morgan patronage had definite advantages for the railroad. The New
Haven’s stock was considered the safest of blue-chip investments and sported a
high dividend. And Charles Mellen had redeeming features as a railroad man.
For the first time, he enabled passengers to travel from New York to Boston
without switching lines. The problem was that Mellen was a thorough rascal.
Here was William Allen White’s verdict: “Mellen, in the eyes of economic
liberals, was the head devil of the plutocracy in Massachusetts and New
England. . . . In politics, Mellen walked to his ends directly, justified by the
conscience of a plutocrat, which held in contempt the scruples of democracy.”20
Congressional investigators later revealed that Mellen handed out about a
million dollars in bribes on one suburban line alone. Beyond shame, he even
suborned a Harvard professor to deliver lectures favoring lenient regulatory
treatment for trains and trolleys. So pervasive was New Haven power in New
England that it was termed the “invisible government.”21 Mellen’s largesse
extended right up to the Republican National Committee. When later granted
immunity from prosecution, Mellen almost gloried in the vicious squalor, the
total absence of business scruples. Testifying about the competition between the
New Haven and a rival, he was asked what form it took. “Any form you can
imagine—one man cutting the heart out of another, except they were two
railroads.”22
An open scandal, the New Haven attracted the attention of the most cunning
and resourceful foe the House of Morgan would ever face—Louis D. Brandeis,
now a “people’s lawyer” but later a Supreme Court justice. The son of eastern
European immigrants, a Harvard Law graduate, Brandeis was already a
millionaire lawyer in 1907 when he took on the New Haven as a public-interest
cause. That year, he spearheaded the fight against the purchase of the Boston &
Maine.
Brandeis conducted a searching critique of the Gentleman Banker’s Code—
those rituals that governed competition among elite banking houses. He sounded
themes of excessive banker influence that would be amplified by the Pujo
hearings and echoed in the New Deal, later shaping Securities and Exchange
Commission policy. He argued for an arm’s-length distance between bankers and
companies. For Brandeis, bankers who sat on corporate boards were in a
conflict-of-interest situation. Far from being neutral confidants of companies,
they were tempted to load up clients with unneeded bonds or charge them
inflated commissions. The House of Morgan was his major object lesson; he said
it symbolized “a monopolistic and predatory control over the financial and
industrial resources of the country.”23 The Brandeis critique was predicated not
on government regulation of monopolies but on breaking them up and reverting
to a small-scale competitive economy. Over time, this view would prove far
more threatening to the House of Morgan than the trustbusting of Teddy
Roosevelt and other supporters of large-scale industry.
The New Haven’s day of reckoning came in 1911, when its debt burden
forced layoffs, pay cuts, and deferral of critical track maintenance. The road
piled up a grisly record of train wrecks—four that year, seven the next—that
caused dozens of deaths. As the train wrecks mounted in 1912, Brandeis found
an ever-wider audience for his attacks on the New Haven, and the Interstate
Commerce Commission began to hold hearings on the matter. That summer,
Brandeis went to Sea Girt, New Jersey, to consult with Woodrow Wilson, the
Democratic presidential nominee. Brandeis advised Wilson on economic
matters, wrote speeches, and slipped the Money Trust into his rhetoric, getting
Wilson to espouse an end to interlocking directorates between bankers and
industrial companies. For Brandeis, the New Haven was an archetypal battle in
the eternal war between “the people” and “the interests.”
Threatened by Brandeis, Mellen fought back in inimitably dirty style. A
Boston publication called Truth, subsidized by the New Haven, portrayed
Brandeis as an agent of Jacob Schiff and described his campaign as part of the
“age-long struggle between Jew and Gentile.”24 In December 1912, Mellen and
Morgan issued a stinging press release, accusing Brandeis of trying to destroy
confidence in the New Haven. But Brandeis was winning converts, and Mellen
was indicted by a federal grand jury on antitrust charges. He waived immunity,
apparently hoping to spare Pierpont the strain of a subpoena during the Pujo
investigation. The Pujo report further bolstered Brandeis’s case against Morgan
and the New Haven. And that was where matters stood at Pierpont’s death.
That Pierpont’s sins would be visited on Jack became evident on June 12,
1913, when a New Haven collision at the Stamford station killed seven
passengers. Wilson’s new attorney general, James C. McReynolds, already had
civil and criminal suits against the New Haven in the works, and the climate was
ripe for trustbusters to intensify their campaign. On July 9, the Interstate
Commerce Commission published a report criticizing the New Haven’s financial
management and recommending that the New Haven be stripped of its trolley
and steamship holdings. Here came a critical watershed in Morgan history. As a
banker of the Baronial Age, Pierpont would have stood obstinately by Mellen,
spewing rage. But Jack had replaced his father on the railroad board. Heeding
the ICC warning, he ousted Mellen and overrode the rest of the board to do so. It
wasn’t that Jack had any ideological sympathy with government regulation; he
was as rabid on the subject as his father. But as a tactical matter, he was more
conciliatory—more a banker of the Diplomatic Age. The New Haven board
brought in Howard Elliott of the Northern Pacific to replace Mellen.
The New Haven would always be a touchy subject with the Morgans, who
considered themselves benefactors of New England. Pierpont had been the proud
president of the New England Society. His grandson Harry Morgan later said
that Pierpont “was so loyal to the region” that he had “a blind spot when it came
to New England and the New Haven’s place in it.”25 Facing a chorus of
criticism, Jack tried to defend his deceased father, claiming that in his last years
he had spent half his time abroad and couldn’t possibly be held responsible for
the railroad’s excesses. Yet Jack’s cables reveal that Pierpont stayed in touch on
New Haven matters. He might have been gallivanting on the Riviera or cruising
up the Nile, but he followed the railroad’s affairs. In 1910, Mellen had wanted to
extend the New Haven’s territory to the newly completed Pennsylvania Station
in Manhattan. Sensing a competitive threat to his other ward, the New York
Central, Pierpont threatened to resign if Mellen persisted. All the way from
Rome, he bellowed, “You can tell C. S. Mellen with my compliments that if he
persists in proposed policy he will, in my opinion, make mistake of his life.”26
Pierpont was remote in body but not in spirit.
Even after Howard Elliott’s appointment, horror stories still abounded at the
New Haven. In September 1913, another wreck outside New Haven killed
twenty-one passengers and trapped forty boys returning from summer camp. An
ICC report blamed Morgan and Mellen. Then, in a final humiliation for the bank,
the debt-riddled New Haven skipped its dividend in December for the first time
in forty years. It was a classic widows-and-orphans stock, and thousands of
small investors lost their income before Christmas. Whether from shame, anger,
or a desire to avoid blame, both Jack Morgan and George F. Baker missed the
meeting at which the historic vote was taken. Attorney General McReynolds still
breathed down the necks of the New Haven board, which he thought was
dominated by bankers. The Morgan men knew they were outflanked. “Whole
situation disgusting,” Harry Davison cabled to Jack, “but must recognize that
Brandeis et al have ear of President and Attorney General just now.”27 Jack told
Davison that he would resign from the New Haven board, except that it might be
seen as confirming Brandeis’s attacks on him and his father.
During the New Haven controversy, there was an important sideshow that
never came to light. During the fall of 1913, Brandeis published his influential
series Other People’s Money—and How the Bankers Use It, in Harper’s Weekly.
His critique of the Gentleman Banker’s Code argued that bankers on corporate
boards introduced nepotism and double-dealing. As a result of these articles,
Tom Lamont decided to put into effect his new public relations policy of meeting
privately with bank critics. Through Norman Hapgood, editor of Harper’s
Weekly, he arranged for a private chat with Brandeis in December 1913 at the
University Club on Fifth Avenue. A verbatim transcript of the meeting survives.
Let us picture the antagonists as they settled into their armchairs. Speaking
with a Kentucky drawl, the young Brandeis had a wide face, large jug ears,
powerful shoulders, and flaring eyes. Lamont was short and elegant, had a look
of keen, watchful amusement, and was very tough beneath the charm. Confident
of his persuasive powers, Lamont was as refined with strangers as Jack was
awkward. In his meeting with Brandeis, we see him emerging as the principal
image maker and ideologist of the House of Morgan.
Lamont cast Pierpont’s faith in Charles Mellen as a virtue: “Mr. Morgan had
that large nature which led him almost blindly to have faith in a man when once
it was established.”28 He reiterated Morgan dogma that bankers were responsible
to investors and had to be on boards to safeguard their interests. Brandeis
retorted, “You could be kept precisely as fully in touch and informed off the
board as you are on.”29 Lamont seemed caught off guard. Rather than having
bankers negotiate private deals with clients, Brandeis espoused open,
competitive bidding for securities offerings. Lamont said this worked fine in
good times, when investors readily took new issues, but left companies adrift in
bad times, when investors became apprehensive. These arguments would
reverberate for forty years.
Both Lamont and Brandeis tried to sound friendly, although Brandeis was
more dogged, relishing a chance to confront his adversary face-to-face. After a
time, it grew clear that both men circled around something unspoken—namely,
mythical Morgan power, the belief on Wall Street that if the bank had a single
director on a board, he would dictate to all the others. Lamont was exasperated
by glancing references to this power and finally confronted it directly:
Lamont: You are picturing our firm . . . as having this gigantic power over
men and matters.
Brandeis: But it has that power, Mr. Lamont. You may not realize it, but
you are feared, and I believe the effect of your position is toward
paralysis rather than expansion.
Lamont: You astonish me beyond measure. How in the world did you arrive
at the belief that people are afraid of us, or that we have this terrific
power?
Brandeis: From my own experience.30
Brandeis told how he had foreseen the New Haven debacle, had gone to
Boston bankers to complain about the railroad’s management, and was told the
road was “Mr. Morgan’s particular pet” and that they feared being excluded from
future Morgan bond syndicates if they offered any protest. This was probably
true: any firm that refused to participate on one Morgan issue might be penalized
on others.
In the end, Brandeis scored more points in the debate—one senses Lamont
was unprepared for the attorney’s fierce intelligence—but neither side budged in
his position. Yet the conversation resonated in Lamont’s mind, particularly
Brandeis’s charge that Wall Street lacked interest in small businesses. Years later,
when advising Woodrow Wilson at Versailles, Lamont asked the president if he
could cite a single instance of a deserving company being denied credit on Wall
Street; according to Lamont, Wilson could not. The Brandeis encounter started a
lifelong effort by Lamont to present a coherent case for Morgan power. He
needed to make others believe in the bank’s virtue. Through him, Wall Street’s
most reticent bank would acquire a refined voice and an explicit ideology.
In the Diplomatic Age, companies remained tied to their Wall Street bankers,
but the strings were already loosening. The Baronial Age was based on the
immaturity of industry. Now large companies were accumulating cash reserves
and financing expansion from retained earnings. When private bankers were
better known than the companies they sponsored, exclusive relations with clients
guaranteed their access to scarce capital. But such Morgan offspring as AT&T,
U.S. Steel, and International Harvester were now becoming established
companies on a national and even a global scale, outgrowing the need for banker
protection.
For Pierpont’s generation of bankers, membership on the boards of client
companies was an article of faith. But in January 1914, hoping to placate the
Wilson administration, Morgan partners startled Wall Street by resigning as
directors from thirty companies, including banks, railroads, and industrial firms.
Jack resigned not only from the New Haven, but from the New York Central, the
National City Bank, the First National Bank, and the National Bank of
Commerce. (By lumping the New Haven with the others, he didn’t give Brandeis
the satisfaction of a lone resignation.) He hoped this would stop legislation,
supported by Wilson, outlawing bank-company interlocks. The Clayton Antitrust
Act of 1914 forbade interlocking boards of competing companies but didn’t stop
bankers from sitting on the boards of client companies.
Changes in the government-business balance were now occurring with
amazing speed. In 1913, the Sixteenth Amendment was ratified; the following
year, income taxes soared, and the Federal Trade Commission was created. Jack
accepted the changes bitterly. Like Pierpont, he would store up anger silently
until it overwhelmed him. Now he stewed inwardly, indulging in jeremiads that
prefigure his remorseless hostility toward the New Deal. He inveighed against
“destructive elements” that had supposedly controlled the country since Teddy
Roosevelt. He wrote a friend in June 1914: “A greater lot of perfectly
incompetent and apparently thoroughly crooked people has never, as far as I
know, run, or attempted to run, any first-class country. The Mexicans are far
better off, because their various bosses only murder and rape, and our bosses run
the country and make life intolerable for a much larger number of people.”31
One final episode in this last flowering of Progressive reform should be noted.
On December 23, 1913, President Wilson signed the Federal Reserve Act.
Wilson, of course, had insisted on a Federal Reserve Board in Washington under
political, not banker, control. “There are only two choices,” he said. “Either to
give the central control to the bankers or to give it to the government.”32 Earlier
in the year, Jack had gone down to Washington with the Morgan plan for a
central bank under private control. J. P. Morgan and Company had not only
formulated a scheme but had had it beautifully printed up. When Wilson’s close
adviser, Colonel House, saw what Jack had brought, he hastily told him to
present it to Wilson typed on ordinary paper, lest Bryan and the Progressives
think the House of Morgan was dropping off a prearranged plan.
The Federal Reserve System that went into operation in November 1914, was,
in many ways, a Morgan godsend. It took some political heat off the bank. As
Fed historian William Greider has written, “As an economic institution, the Fed
inherited the noblesse-oblige role that the House of Morgan could no longer
perform—and also some of the resentment.”33 The diminution of Morgan power
was less than met the eye. In many ways, the Washington board, which oversaw
the twelve regional banks, was toothless. The New York Fed, in contrast,
emerged as the focal point for dealing with European central banks and the
foreign exchange markets. So, real financial power remained where it had
always resided—on Wall Street.
The critical position in the new system was the governor of the New York
Federal Reserve Bank. Its first occupant, Benjamin Strong, had Morgan written
all over his resume. He was a protege of Harry Davison, who had made him a
secretary of Bankers Trust and brought him in as Pierpont’s personal auditor
during the 1907 panic. There was an emotional bond between the two men.
When Strong’s wife committed suicide after childbirth and a daughter died a
year later, the Davisons took the three surviving Strong children into their home.
Strong then married Katherine Converse, daughter of Bankers Trust’s president,
and had become president himself by 1914.
That year, when the New York Fed job became available, Strong balked at
taking it. Not only had he supported the bankers’ Aldrich plan, but he had even
campaigned against the Federal Reserve Act. Only after spending a long country
weekend with Harry Davison and Paul Warburg did he take the job. Strong
wanted to endow the New York Fed with the dignity and prestige of the Bank of
England. The House of Morgan directed him to Teddy Grenfell for tutorials on
how that bank operated. Through Strong’s influence, the Federal Reserve System
would prove far more of a boon than a threat to Morgans. The New York Fed
and the bank would share a sense of purpose such that the House of Morgan
would be known on Wall Street as the Fed bank. So, contrary to expectations,
frustrated reformers only watched Morgan power grow after 1913.
CHAPTER TEN
WAR
EVEN as domestic troubles crowded in upon the House of Morgan, the bank
was on the eve of its most spectacular foreign triumph, one that would make
Pierpont Morgan look provincial in comparison. During the early summer of
1914, an industrial recession was accompanied by a bear market on Wall Street.
Businessmen grumbled that Woodrow Wilson’s crusade against the “interests”
had chilled the entrepreneurial spirit. In this gloomy frame of mind, American
investors panicked when they learned of Austria-Hungary’s declaration of war
against Serbia on July 28, 1914. Wall Street, which prided itself on its
prescience, was once again caught napping by a historic event.
The House of Morgan had closely followed European events. Although later
accused of World War I profiteering, it nearly engaged in clandestine diplomacy
to stop fighting between the Balkan states and Turkey in 1912. The plan was to
have the House of Morgan provide loans to both sides on condition that they
submit to American mediation, and President Taft was to have acted as mediator.
The scheme was apparently hatched by Herman Harjes, senior partner of
Morgan, Harjes in Paris, and U.S. ambassador to France Myron Herrick. Jack
Morgan finally vetoed the idea, fearing that the loan money would be used to
further the war effort, which the House of Morgan wished to stop.1 He also
refused to proceed without the full cooperation of the European powers.
The hysteria that seized Wall Street in late July 1914 stemmed from a
misguided fear that transatlantic trade would collapse and worsen the recession.
Americans thought they couldn’t survive without European capital and feared
that gold would be withdrawn from New York and hoarded in London. After the
czar mobilized over a million Russian troops on July 29, all the European
markets shut down. As overseas investors rushed to liquidate securities through
New York, the Stock Exchange took its steepest one-day dive since the 1907
panic.
By the morning of July 31, 1914, a staggering accumulation of overnight sell
orders threatened a thunderous crash. Even though Pierpont Morgan was now
dead, his star pupil, Harry Davison, had been well tutored in the 1907 panic.
Bankers still instinctively resorted to 23 Wall Street in an emergency. The House
of Morgan was more than a man; it had acquired an institutional continuity.
Davison summoned Wall Street’s bankers to the old Mills Building at 15 Broad
Street, the provisional Morgan home while the new headquarters was being
readied. Before the start of trading, the Stock Exchange president rushed over for
consultation.
Even though Jack was there, Davison presided. Also present was a new
Morgan banker, Dwight W. Morrow, a distinguished tax and utility lawyer.
Morrow recalled the frantic discussion: “The Stock Exchange authorities wanted
to know whether to open or not, and nobody knew what to tell them. It got down
to about five minutes of ten, and the President . . . called up the Exchange and
told them to announce that the Exchange would be closed.” It was a hairbreadth
reprieve: the man who rang the opening gong had already assumed his post, and
traders shrugged with relief. “It was in my very early days in a banking firm,”
Morrow added, “and I can remember that I was impressed with how little
anybody knew what he was doing.”2 Curiously, Morgan accounts of this meeting
omit a 9:30 A.M. phone call that Jack made to Treasury Secretary William G.
McAdoo, who advised him, “If you really want my judgment, it is to close the
Exchange.”3
The New York Stock Exchange didn’t resume restricted trading until
December, and normal trading didn’t return until the following spring. A curious
fugitive institution sprang up—the so-called gutter market of outlaw brokers,
who loitered on the curbs trading stocks. According to Wall Street lore, it started
out with “four boys and a dog,” but soon a hundred brokerage firms jumped into
sidewalk trading on New Street—to the point where the Stock Exchange
clamped down. As Alexander Dana Noyes noted, this ragtag band was probably
“at the time the only actual stock market in the world.”4
The war was initially a bleak time for the House of Morgan. Like other banks,
it made a great deal of money from broker call loans—loans made to buy stock
on margin—and so started the war in low spirits. This despondent mood
obscured a momentous shift in world finance: the United States was about to
capture financial supremacy from England and emerge as the leading creditor
nation. Although nobody quite realized it at first, the English era was over. After
the war, world currency markets would shift from a sterling to a dollar standard.
The news of war was greeted with melodramatic foreboding by Jack Morgan,
who foresaw “the most appalling destruction of values in securities which has
ever been seen in this country.”5 Later reviled as a “merchant of death” by
isolationists, his first reaction, in fact, was spotlessly humane. On July 31, he
even issued a rare public appeal for peace: “If the delicate situation can be held
in abeyance for a few weeks, I should expect a rising tide of protest from the
people who are to pay for war with their blood and their property.”6 Far from
rubbing his hands at the prospect of war profits, he scoffed at the notion that
New York might supplant London as the world’s financial center.
The partner with the best antennae for the seismic shift was Harry Davison.
The war would be his glory time. Almost at once, he sensed a Morgan bonanza
and immediately dispatched telegrams to Lamont, then trout fishing and
horseback riding on a Montana ranch. These telegrams throb with excitement:
THE CREDIT OF ALL EUROPE HAS BROKEN DOWN ABSOLUTELY SPECIE PAYMENTS
SUSPENDED AND MORATORIUM IN FORCE IN FRANCE AND PRACTICALLY IN ALL
COUNTRIES THOUGH NOT OFFICIALLY IN ENGLAND. . . .
PROBABLY COULD DO LITTLE IF YOU WERE HERE THE ONLY POINT BEING
THAT IS FILLED WITH EXTRA ORDINARY INTEREST AND OF COURSE GREAT
POSSIBILITYS. . . . PERHAPS I MIGHT EXPRESS THE SITUATION BY STATING THAT IT IS
AS IF WE HAD HAD AN EARTHQUAKE ARE AS YET SOMEWHAT STUNNED BUT WILL
SOON GET TO RIGHTING THINGS.7
An immediate war casualty was that chronic Morgan stepchild, the city of
New York, which had about $80 million in European obligations coming due. As
the dollar plunged—making repayment more expensive—and the United States
faced a possible standstill in transatlantic trade, sentiment was strong for
suspending payment on the debt. Why not exploit the European chaos to save
some money? Forming a syndicate to pay off the bonds, the House of Morgan
and Kuhn, Loeb organized an impromptu rescue. Gold was shipped to the Bank
of England and then credited to Morgan Grenfell, which paid off New York City
notes as they matured. The operation was a mark of financial maturity, a signal
to the world that New York as a financial center could offer safety comparable to
that of London.
For many Americans, the war was at first a distant irrelevance; for
isolationists, it provided yet another example of why America should steer clear
of foreign imbroglios. Despite his sympathy for the Allies, President Wilson
issued a proclamation of neutrality, entreating Americans to be “impartial in
thought as well as action.” For Morgan partners, this was impossible. As Tom
Lamont said, “we wanted the Allies to win, from the outset of the war. We were
pro-Ally by inheritance, by instinct, by opinion.”8 As cosmopolitan bankers with
London and Paris affiliates, the Morgan partners were deeply enmeshed in
European life and had too abiding a faith in Anglo-Saxon civilization to stand on
the sidelines. Yet it was also a cardinal rule of the Diplomatic Age not to defy
government edicts, and the bank abided by Washington’s policy.
In early August, the French, who had appointed J. P. Morgan and Company as
their financial agent, sounded out the bank on a possible $100-million loan. The
Wilson administration did more than deny this request. The secretary of state,
William Jennings Bryan—the toad in the garden of Morgan history—denounced
loans to belligerents as “the worst of contrabands.”9 A few days later, he told the
press that loans by American bankers to warring nations were “inconsistent with
the true spirit of neutrality.”10
Within six weeks, Bryan’s policy on contraband financing was reversed as
Wilson tilted—subtly but unmistakably—toward the Allies. Robert Lansing, the
State Department counselor and acting secretary of state that fall, figured out a
way to sidestep U.S. neutrality through legal legerdemain. He persuaded Wilson
to adopt a serviceable distinction between forbidden “loans” made through
foreign war bonds and permissible “credits” for Allied purchases of materiel.
Why the sudden shift after only two months of war? American exports to Europe
had lifted the United States from recession, and even parochial farmers worried
that Allied purchases of grain, meat, and cotton might be curtailed for lack of
credit. As Davison told Treasury Secretary McAdoo, “to maintain our prosperity
we must finance it.”11 The House of Morgan offered a convenient cover for
preserving the appearance, while denying the spirit, of neutrality.
With much industrial slack, the United States was an ideal arsenal for the war.
But as the Allies bid against each other for American supplies, they drove prices
sky-high; even separate departments of the British government ended up in bitter
competition. To relieve such price pressure, Lloyd George, then the chancellor of
the Exchequer, asked Teddy Grenfell if Morgans in New York could do anything
about expanding American rifle production, and Jack Morgan made inquiries at
the Remington and Winchester arms companies. But more than expanded
production was needed to stop war profiteering. In October 1914, the British
Treasury sent over Sir George Paish and Basil Blackett to look into the problem.
The most mandarin of Whitehall bureaucracies, the British Treasury needed a
Wall Street outpost and found it in their New York agent, the House of Morgan.
When the Treasury men returned to London in late November, they had another
passenger stowed away on board, Harry Davison. Because Willard Straight was
restless, Davison took him and Dorothy along. The Straights’ new magazine, The
New Republic, was already running a letter from Ray Stannard Baker warning
American business not to exploit the war “to promote its own business and
trade.”12
Davison had come up with an inspired idea, which Straight claimed was
stolen from him. Davison wondered whether the House of Morgan could get rid
of plundering middlemen by concentrating Allied purchases in a single agency
that would negotiate from a position of strength. He knew the preferred Morgan
style was never to grandstand and suggested that Jack Morgan take the boat with
the Treasury men. Never one to steal glory, Jack replied, “You jump on the
steamer yourself, this is your idea.”13 Jack’s friend Sir Cecil Arthur Spring-Rice,
the British ambassador in Washington, had lobbied for a similar idea, telling the
Foreign Office that it would require a firm of stature in both London and New
York. The Anglo-American House of Morgan was the logical choice.
Once Davison was installed at Claridge’s, Teddy Grenfell led him on a tour of
Bank of England and Whitehall officials. British officials liked the Davison plan,
and not only because it would lower prices. Politically, it would convert the
House of Morgan into a lightning rod for the inevitable charges of favoritism
that go with wartime contracts. The firm’s liabilities were also apparent. Some
officials feared that British radicals would have a field day with this Wall Street
link, and others worried about the bank’s unpopularity among certain sectors of
American society. The House of Morgan knew its own unpopularity west of the
Mississippi. In April 1914, it had considered setting up a rare branch in Chicago
to soften midwestern sentiment against it.
On December 16, 1914, Davison lunched with the prime minister, Herbert H.
Asquith, and the chancellor, David Lloyd George. He brought along a contract
for a proposed Morgan purchasing agency for the Allies. The prime minister
reviewed it paragraph by paragraph and said he “approved every word.”14 On
January 15, 1915, the House of Morgan signed the Commercial Agreement with
the Army Council and the Admiralty. The first purchase was $12 million for
horses—then an urgently needed item. In the spring, a similar arrangement was
concluded with the French through the senior Morgan partner in Paris, Herman
Harjes.
Nobody foresaw the magnitude of the proposed operation. Lord Kitchener,
secretary of war, told Davison the purchases might amount to £10 million—and
he stressed that he was guessing on the high side. In fact, the purchases came to
an astronomical $3 billion—almost half of all American supplies sold to the
Allies during the war. Skimming off a 1-percent commission, the House of
Morgan booked an astounding $30 million in fees. It was probably the most
important deal in its history, not only for the money but for the political and
corporate contacts it produced. Jack Morgan had qualms about the bank going
into such alien business but feared a political backlash against the United States
in Britain if war profiteering continued. At the White House in late January
1915, Jack got Woodrow Wilson’s blessing, who said he wouldn’t interfere with
any action in “furtherance of trade.”15
The old private banks of Wall Street and the City had a chameleon quality and
could quickly adapt to opportunities. To head what became the Export
Department, Tom Lamont recruited Edward R. Stettinius, Sr., president of the
Diamond Match Company. A former speculator in the Chicago wheat pits,
Stettinius had well-brushed silver hair, a mustache, and rimless spectacles. His
neat exterior reflected a meticulous, almost obsessive, attention to detail. Later,
Secretary of War Newton Baker would refer to his “almost terrifying sense of
responsibility.”16 From 9:00 A.M. until midnight daily, he lashed a Morgan staff
of 175 known as SOS—Slaves of Stettinius. He didn’t simply hire people: he
conscripted them, squeezed them, drove them to exhaustion. One drone later
said, “If any fellow quit at 9 o’clock at night he was usually congratulated by the
others on being about to take a half-holiday.”17
The purchasing operation reflected the size and the complexity of modern
warfare. World War I seemed both primitive and modern, an incongruous
mixture of cavalry charges and zeppelin raids, cannon fire and mustard gas.
There were endless salvos of deadly projectiles: at the Battle of the Marne alone,
two hundred thousand shells were exploded in a day. So the logistical needs
were immensely varied and of decisive importance in the war effort.
Stettinius became the single most important consumer on earth, rounding up
$10 million in goods per day. He bought, shipped, and insured supplies on an
unprecedented scale and stimulated methods of mass production. As word of his
operation spread, 23 Wall Street was mobbed by brokers and manufacturers of
every description; the bank had to post guards at every door and assign them to
partners’ homes. Each month, Stettinius presided over purchases equivalent to
the world’s gross national product a generation before. He bargained hard for
corned beef and barbed wire, locomotives and artificial limbs.
The German general staff had never imagined that the United States could
switch so quickly to war production. As the capacity of plants became strained,
Stettinius promoted the building of new factories. The House of Morgan and
Great Britain made loans to Winchester Repeating Arms for new gun capacity
and advanced money to many other firms to fulfill their contracts. By war’s end,
the United States had an arms-making capacity that eclipsed that of England and
France combined. For his efforts, Stettinius would bear the unlovely tag of father
of the military industrial complex. Even General Erich von Ludendorff was
heard to say that Stettinius was worth an army corps to the Allies.18 He became a
czar of American industry. Boris Bakhmeteff, head of a Russian Industrial
Mission to the United States, recalled a meeting at which Stettinius assembled
the heads of some of America’s largest companies and “gave them hell in words
that I was ashamed of.”19
Because Stettinius was the linchpin of the Allied supply operation, his safety
became a high priority, especially after Erich von Falkenhayn, chief of
Germany’s general staff, decided to achieve victory by cutting off the Allied
supply line. British intelligence agents informed Stettinius of threats against his
life. They told of a “certain lovely lady” in New York who had seen a German
agent carrying letters addressed to him. As a security precaution, Stettinius’s
family was uprooted without warning from their thirteen-acre mansion on Staten
Island and relocated on Long Island. Stettinius himself spent the war aboard the
cruiser Margaret, anchored in New York harbor. His room was tastefully
appointed with vases, linen, china, and plated silver, all picked by that wellknown decorator Harry Davison.
The Morgan bank also performed intelligence work for the British. When the
Morgan partners learned of a plan by German investors to buy up Bethlehem
Steel, they met with company officials and had them put their shares in a voting
trust, making the defense contractor impregnable to an unwanted takeover. In an
extraordinary act of faith, the British exempted the House of Morgan from mail
censorship in and out of Britain, allowing it to retain an in-house code developed
by Stettinius and his British contact, Charles F. Whigham of Morgan Grenfell.
Hence, in wartime cables, Jack retained his code name Chargeless and Lamont,
Chalado. Sticking to tradition, the bank wouldn’t let any outsider have access to
its code book.
Nonetheless, the Export Department wasn’t an unqualified success. The
French never used it as much as the British did, and the British Admiralty
remained cool compared with the War Office—a tension unrelieved by a
meeting between Jack and First Lord of the Admiralty Sir Winston Churchill.
There were also persistent suspicions that the bank favored friends. Though
contracts were distributed to almost one thousand companies, many big winners
—General Electric, Bethlehem Steel, Du Pont, and U.S. Steel—were firmly in
the Morgan camp.
The war was especially profitable for the Guggenheims. In 1914, the House of
Morgan helped them to organize Kennecott Copper, America’s biggest copper
producer, as a public company; Daniel Guggenheim was a frequent wartime
visitor to Morgan partner Thomas Cochran, who sat on Kennecott’s board. The
Export Department bought up three-quarters of all the electrolytic copper mined
in the United States for the British, and the Guggenheims and many others made
fortunes from it. Another Guggenheim company, American Smelting and
Refining, enjoyed a boom as the Allies bought lead for rifles and bullets. The
distribution of billions of dollars in contracts enabled the House of Morgan to
win the loyalty of dozens of powerful companies.
Within bounds, the British tried to prevent the bank from abusing its
extraordinary powers. To investigate charges of favoritism, Great Britain sent a
mission to New York under the Welsh coal magnate David Alfred Thomas, later
Lord Rhondda. Staying at the Plaza Hotel for three weeks during the summer of
1915, Thomas hovered around the bank and found Stettinius’s work faultless. He
did report to England that the bank was buying excessively from Republicans,
and Lloyd George advised Davison to spread the wealth around. Davison replied
that they would try to distribute contracts geographically.
Thomas’s stay in New York had one uneasy moment. One day, he got a call
from his secretary at the Plaza, saying a sudden gust of wind had blown some
confidential memos out the window; three sheets of top-secret onionskin had
fluttered down onto Fifth Avenue. This breach of security was so grave that
Lloyd George was notified in London. Through late-afternoon drizzle, Morgan
employees scoured the avenue, ducking under parked cars and staring down
drains. The sheets were lost. To console Thomas, his staff took three identical
sheets, dragged them through bathwater, and showed him how they decomposed.
Notwithstanding Thomas’s report, the British remained wary of Morgans and
believed it rewarded friendly steel, chemical, and shipping concerns. Asquith
consoled himself with the thought that the bank kept its back scratching within
tolerable limits. He wrote to Reginald McKenna, who had succeeded Lloyd
George as chancellor of the Exchequer: “In regard to Morgan’s, while I do not
doubt that they have made and will continue to make all that they can out of us, I
see no reason to think that they have been acting unfairly, still less treacherously.
The original contract with them may or may not have been wise, but it would be
bad policy to swop horses now, or to make them suspect that we distrust
them.”20
In fact, the British were never foolishly or blindly in love with the House of
Morgan. They welcomed having an Anglo-American listening post on Wall
Street, especially as financial power shifted across the Atlantic. But the
government’s deliberations during the war were veined by a certain cynicism, a
belief that Morgan partners drove a hard bargain and needlessly offended people
with their arrogance. Relations between the Morgans and the British would
always be close but seldom harmonious, a fraternal tension lurking beneath
protestations of mutual devotion.
other partners at 23 Wall Street harbored some secret envy or
suspicion of their British brethren, Jack Morgan had no such reservations. He
regularly spent up to six months a year in England and was fully bicultural. For
him, the war was a holy cause as well as a business opportunity. Even more than
Pierpont, Jack was simple and guileless. He inhabited a black-and-white world
in which loyalty to England found its equal and opposite emotion in hatred of the
Germans. Unstinting in serving England, he donated Dover House, Junius’s old
country house at Roehampton, as a convalescent home for wounded officers. He
instructed his steward at Wall Hall to plough up parkland and plant wheat for the
war effort. Once Jack’s passions were engaged, his commitment was total. J. P.
Morgan and Company even took a stake in Montana wheat fields to supply more
war provisions.
With America officially neutral, Stettinius’s Export Department exposed the
bank to inflammatory criticism. It fanned anti-Morgan sentiment that had existed
in the hinterlands ever since William Jennings Bryan’s Cross of Gold speech.
During rallies at the Corner, agitators would point to 23 Wall and blame Morgan
partners for killing thousands of innocents. Senator Robert La Follette echoed
small-town sneers when he asked, “What do Morgan and Schwab [head of
Bethlehem Steel] care for world peace, when there are big profits in world
war?”21Minnesota congressman Charles Lindbergh, who had prompted the Pujo
hearings, now condemned the “money interests” for trying to lure the country
into war on the side of the Allies. A dual myth was being born—that the
Morgans were stooges of the British crown and that their money was drenched in
blood. The bank received a flood of hate mail. Lamont received one note that
said, “My dear Mr. Lamont—Your death doom is marked by your activity for the
British war loan, which will deal death to my brothers on the battlefield in
Germany. It shall be a distinct pleasure for me to puncture your black heart with
lead some time in the distant future.”22
Jack tried to avoid publicity that might incite Congress. When Harry Davison
and lawyer Paul Cravath wanted to form a political committee to proselytize for
the Allies, Jack refused. He also shied away from public appearances with his
close friend Sir Cecil Arthur Spring-Rice, the British ambassador. In January
1915, writing about an upcoming trip, Jack told Springy that it might be “wiser
for me not to be actually living at your house when I am in Washington. We are
endeavouring to conduct this transaction with the British Government as
inconspicuously as possible . . . but I must say that I do not see why, when you
get away, you should not come and stay with us, which would be more quiet
than staying in a hotel.”23
WHERE
Jack had always lived with a heightened awareness of danger. While at
Harvard, a detective had tagged along behind him. After Jack’s younger son,
Harry, returned to New York with his British tutor, the boy had become obsessed
with fears of kidnapping. While Pierpont was still alive, Jack had experienced a
burglary at Madison Avenue that smelled bizarrely of class revenge: the burglar
had casually sat around the house, smoking his cigars. Another time, a
blackmailer threatened to blow up Jack’s house unless money was deposited
beneath a bush in Central Park; no money was paid, and no bomb went off.
The House of Morgan was also an irresistible magnet for crackpots, who were
attracted by its aura of mystery. Early in the war, a stream of abusive letters
arrived from a madman named Schindler, who believed the bank had stolen his
interest in an Alaska mine but refused to admit it. Such constant threats stoked
Jack’s already fertile imagination, and he was wont to see conspirators
everywhere.
As it turned out, however, Jack’s fears weren’t entirely groundless. On the
balmy Sunday morning of July 3, 1915, Jack and Jessie were having breakfast at
their North Shore estate with Spring-Rice and his wife. They were just finishing
the meal when the Morgan butler, Henry Physick, went to answer the door.
There wasn’t yet a guardhouse at the causeway that connected the island to the
Long Island shore, and interlopers could walk straight up to the door. A slight,
gray-suited stranger greeted Physick and handed him a card saying “SUMMER
SOCIETY DIRECTORY, REPRESENTED BY THOMAS c. LESTER.” He asked to see Mr.
Morgan.
Physick was a British butler of the old school. He usually wore a dark coat
and gray striped trousers and was precise in his manners. Tactful but scenting
danger, Physick refused to let the insistent stranger pass. He quickly raced to the
library, found Jack and Jessie, and shouted “Upstairs!” Following these cryptic
instructions, the Morgans went upstairs and searched the bedrooms, trying to
figure out the problem. Then, at the top of the staircase, they saw the gunman,
brandishing two pistols and leading the two Morgan daughters up the steps.
(Later the gunman confessed that his major mistake was walking in front of the
Morgan children, not behind them, thus reducing their value as hostages.) Trying
to remain calm, the gunman told the Morgans not to be frightened, that he
wanted to talk with them.
If the later police depositions are accurate, everyone showed phenomenal
courage. A woman of steely self-control, Jessie Morgan threw herself at the
gunman. Her courage gave the big, burly Jack time enough to wade in and tackle
the man; he took two bullets in the groin as he subdued him. While servants
pinioned his arms, Jessie and Jack pried loose his two pistols. Then, with timing
so exact it resembles Hollywood stagecraft, Physick rushed in and smashed a
chunk of coal over the man’s head, rendering him unfit for further mischief.
(This splendid touch, alas, isn’t mentioned in the police depositions.) Only after
subduing the man did the Morgans see a large stick of dynamite protruding from
his pocket. The assassination attempt ended with the Morgan servants
submerging the dynamite in water and tightly binding the man in ropes. Dr.
James Markoe, the Morgan family physician, was rushed out to Glen Cove to
treat Jack’s bullet wounds.
At the Nassau County jail, the gunman gave his name as Frank Holt, which
turned out to be an alias for Erich Muenter. A man with a shadowy past and a
former German instructor at Harvard, Muenter had vanished in 1906 after having
been indicted for poisoning his wife with arsenic. Under questioning, he
confessed to being a pacifist opposed to American arms exports to Europe. He
hadn’t planned to kill Jack, he said, only to hold him hostage until munitions
shipments were stopped. He possessed a delirious, dreamlike sense of Morgan
power. The interrogator asked, “Do you think that you singlehandedly could
arrest the whole trend of the age?” “No, but Mr. Morgan could.” “Do you think
he could control those countries?” “With his money, if his money didn’t flow
into their cash drawers, and stop the flow of ammunition.”24 To supplement his
attack against Morgan, Muenter had secreted a bomb the day before in the U.S.
Senate chambers. Whether Muenter had confederates will never be known. Two
weeks later, he committed suicide in the Nassau County jail.
Outwardly, Jack seemed phlegmatic and even clinical about the shooting, as if
he had gone through a mildly unpleasant experiment and were jotting down the
results. Miraculously, the bullets missed all vital organs, and his wounds healed
quickly as he recuperated aboard the Corsair III. “It was a most disagreeable
experience, though it is not as painful as I imagined it would be to be shot as I
was,” he said.25 He credited Jessie’s coolness for foiling the plot and said he had
done only what any parent would have with an intruder pointing a gun at his
family. Dismissive of his own bravery, he was taken aback by the congratulatory
messages that swamped the local telegraph office. On August 16, when he
emerged from 23 Wall after his first day back at the bank, he was cheered by
waiting crowds as he slipped into his limousine. Boyishly surprised, he touched
his hat brim and gave a little wave. Unaccustomed to public adulation, he
attained a fleeting status as a national hero.
Jack’s calm was deceptive, for the shooting had deep effects that he hid
beneath an offhanded manner. While a plot was never proved, Jack insisted
Muenter was no isolated lunatic but part of a terrorist scheme. At his Adirondack
retreat, Camp Uncas, he had the steward “get rid” of Germans and Austrians on
the payroll.26 The shadows suddenly teemed with enemies. From the Corsair,
Jack wrote Teddy Grenfell that Jessie had “an impression that people are trying
to get another shot at me, and I have to look out for this even more than I
otherwise would do, in order to satisfy her.”27 There were many reminders that
Muenter wasn’t a lone Morgan-hater. When news of the 1915 shooting reached
Vienna, it was celebrated by fireworks, speeches, and jubilant crowds.
The shooting reinforced Jack’s reclusiveness, his penchant for privacy at the
retreats of the rich. As a result, he probably spent more time at English country
estates or cruising aboard his yacht; it was no coincidence that he recuperated
aboard the Corsair. The shooting also filled him with a sense of omnipresent
danger, playing to a cloak-and-dagger side of his personality. He frequently
moved about by stealth. Visiting his older son, Junius, in Baltimore during the
war, he wrote a friend about hotel arrangements: “I should greatly prefer that the
hotel would not force me to register or to say that I am coming, owing to the fact
that, apparently, the Germans are still after me, and I am requested by my family
not to state where and when I am going in other towns.”28 After the shooting,
Jack would be accompanied by bodyguards, a team of former marines. Such
heavy security had the unfortunate effect of further distancing him from ordinary
people and making the everyday brands of human misery more remote to him.
Jack’s security was also a constant preoccupation of his highly protective
partners. He was often unaware of security guards in a crowd. In Paris, senior
partner Herman Harjes would notify the surete general whenever Jack visited.
The detectives would stay close but not reveal their presence. Jack moved
behind that invisible shield accorded heads of state.
The shooting would be but one in a series of episodes that darkened Jack’s
view of the world and produced a settled malice toward his enemies. These
episodes made him feel frightened and beleaguered and quickened his tendency
to lash out against his enemies. For all his wealth and power, Jack felt vulnerable
to forces outside his control.
told friends that the shooting had made him more fervently anti-German
and more eager to see the United States enter the war on the Allied side. He
reviled the Germans as “Huns” and “Teuton savages”—he relished colorful
epithets—and exhibited a latent bias against Germany that he had inherited from
his father. As partner George Whitney later explained, Pierpont “always accused
the Germans of doublecrossing him. . . . So there was an edict put down that we
would never do business with the Germans.”29
JACK
World War I was perhaps the last war in which bankers behaved as if they
were sovereign states, indulging their biases and waging their own foreign
policy. On Wall Street, spoils of war were divided strictly according to political
and religious differences among the bankers. The House of Morgan was
superbly positioned. Through its London and Paris houses, it had helped France
finance the Franco-Prussian War and England the Boer War. Jack even had a soft
spot for the czar, to whom he had extended credit.
If a bonanza for Yankee Wall Street, the war was a catastrophe for Jewish
firms, which were encumbered by anti-Russian and pro-German sympathies.
Jacob Schiff, the autocratic head of Kuhn, Loeb, had been aghast at Russian
pogroms, branding the czarist government the “enemy of mankind”; in revenge,
he financed Japan in the 1904-5 Russo-Japanese War. Nonetheless, he moderated
his German sympathies after 1914, endorsed a negotiated peace, and “dutifully
stopped speaking German to his family in public.”30 The less circumspect Henry
Goldman of Goldman, Sachs espoused pro-German views, spouting Nietzsche
and glorifying Prussian culture—much to the dismay of his partners. The
Guggenheims, of German-speaking Swiss ancestry, suppressed any sympathy
they might have had for Germany as munitions contracts rolled in.
During the war, Wall Street and the City were full of scurrilous attacks on
supposedly disloyal Jews. In 1915, Edward Kraftmeier of the British Nobel
Company came to New York to warn the du Ponts that their company, a major
Allied manufacturer of smokeless powder, could fall under the share control of
“pro-German” Kuhn, Loeb. There were fears that Coleman du Pont might sell
his large stake to them. To counter this threat, the du Ponts obtained an $8.5million loan from Morgans, tightly locking up their shares in a holding company
called Du Pont Securities. (When Sir William Wiseman, head of British
intelligence in the United States, investigated the warning about Kuhn, Loeb, he
found it baseless.) German financial penetration was a concern in the City as
well, and the Bank of England “Anglicized” foreign-owned banks; for instance,
it brought in the Pearson group to take over Lazard Brothers, fearing the London
house might fall into German hands if its Paris affiliate were taken over.
In this highly charged atmosphere, Jack Morgan’s pro-British passions and his
anti-Semitism began to feed on one another. In September 1914, he complained
to Teddy Grenfell that the ” ’peace’ talk has been fomented and worked up in a
large measure by the German Jew element, which is very close to the German
Ambassador.”31 Antagonism toward German-Jewish banks sharpened in
December, when the House of Morgan extended a $12-million credit to Russia;
the next month, Great Britain initiated war purchases for the czar through the
House of Morgan. Noting Russia’s treatment of Jews, Schiff stiffly protested to
Jack, who had to tread gingerly, since the two co-managed big bond issues. The
syndicate structure of investment banking made it a world of sharp but sheathed
rapiers. Exercising self-control, Jack wrote to Schiff: “I do not think it is for us
to endeavor to change the attitude of Russia by applying financial pressure. It
seems to me that the question of whether or not Russia is a good and solvent
debtor can hardly be mixed up with questions of internal social or policing
regulations.”32 Of course, Jack himself didn’t regard foreign loans so
dispassionately and often mingled his political and financial beliefs.
The friction between Jack and Schiff led to a tense exchange in May 1915,
when a German submarine off the Irish coast sank the Cunard’s Lusitania, one of
two lavish ships built in response to Pierpont’s shipping trust. Over a thousand
people died, including 63 children. Alfred Gwynne Vanderbilt was among the
128 American casualties. There was grief across America. That morning, amid
heavy gloom, Schiff suppressed his pride and offered his regrets at the Corner.
Haughty and formal, he never made this sort of call. When he entered, he found
Jack in the partners’ room. Instead of receiving Schiff with courtesy, Jack
muttered some angry words and stormed off, leaving Schiff in mystified silence.
He shuffled out alone.
The other partners gasped. It was a flagrant breach of the Gentleman Banker’s
Code, the need to maintain civility on the surface. Jack remarked rather
sheepishly, “I suppose I went a little far? I suppose I ought to apologize?”
Nobody dared to speak. Then the quick-witted Dwight Morrow scratched a
biblical quote on a piece of paper and handed it to Jack. It said, “Not for thy
sake, but for thy name’s sake, O House of Israel!”33 Taking the hint, Jack took
his hat and went off to Kuhn, Loeb to apologize. The tale vividly captures Jack’s
contradictory nature—the polite and courtly surface, the mass of churning
emotions within—as well as the strains of a highly artificial world that
demanded constant civility. With the big syndicated loans, one couldn’t
antagonize a powerful bank that might be an ally on the next issue.
This muted warfare flared into the open in September 1915, during the
creation of the biggest foreign loan in Wall Street history—the $500-million
Anglo-French loan. It was five times as big as the previous record holder, the
$100-million loan to Great Britain for the Boer War. The Stettinius mill was
chewing up £2 million a day and threatened to exhaust British financial
resources. As early as April 1, 1915, Jack lunched with Lloyd George and
discussed a loan of at least $ 100 million to prop up the pound. Teddy Grenfell
and other directors of the Bank of England were worried about the makeshift
war financing.
The financing problem grew acute that July. The British canceled one contract
for the Russians in New York for lack of foreign exchange. To meet a dollar
deadline at Morgans, Reginald McKenna had to commandeer American
securities owned by Prudential Assurance—a piece of ad hoc midnight
desperation that deeply disturbed Prime Minister Asquith. It was a rickety way
to run a war. For the House of Morgan, stymied by the State Department ban on
loans, it was an excruciating time. The one riddle Morgans could never resolve
was what to do when U.S. and British policy diverged.
Wilson opposed a jumbo Allied loan but was finally persuaded by his cabinet
that, without it, U.S. exports would suffer. Treasury Secretary McAdoo argued in
late August that U.S. prosperity depended on trade with the Allies. Robert
Lansing, who had replaced Bryan as secretary of state, starkly warned that
without a loan, “the result would be restriction of outputs, industrial depression,
idle capital and idle labor, numerous failures, financial demoralization, and
general unrest and suffering among the laboring classes.”34 Wilson was
convinced.
In September, the British cabinet dispatched an Anglo-French mission to New
York to arrange a huge private loan. The North Atlantic swarmed with
submarines, and Grenfell was told not to inform Morgans of the group’s
membership. The commission was headed by Lord Reading, the lord chief
justice, and included Sir Edward Holden, chairman of the Midland Bank, Basil
Blackett of the British Treasury, and M. Octave Hombert, the French
representative. Harry Davison and Jack went down to the pier to greet the
Lapland and saw the group settled in at the Biltmore Hotel.
Once again, the Anglo-American Morgan love affair was full of spats and
recriminations. Unwavering in support of Britain, Morgan partners felt bruised
and demeaned by having to compete for the loan. Nevertheless, they gave the
visiting group a red-carpet reception. Lord Reading, ne Rufus Isaacs, presented a
formidable challenge to Jack Morgan’s prejudices. Son of a London fruit
merchant, he was British, brilliant, titled—and Jewish. He had risen to the
position of attorney general, cross-examining witnesses during the British
Titanic inquiry. Jack and Davison visited Reading at the Biltmore, feted him at
the Morgan Library, and entertained him aboard the Corsair. Against all odds,
personal chemistry between Jack and Reading would help to seal the deal.
The Anglo-French loan tested New York’s capacity as a financial market. The
victorious Morgans had to contend with broad hostility toward Britain. One in
ten Americans was of German ancestry, and many first-generation Irish
immigrants opposed the loan. Fantastic numbers were bandied about—up to $1
billion—and skeptics doubted it could be done. Such sums staggered and
frightened Americans, much as had the huge trusts a few years before. In
retrospect, the Anglo-French loan would mark the rise of America as the world’s
chief creditor nation. Yet, even as the House of Morgan superintended this
transfer of financial power, Jack was dubious that it would last, assuring Grenfell
that “when the war is over, you will find the United States settling down again
into using the European money markets as a clearing house, very much as
before.”35 Jack didn’t exult over Britain’s decline and found it hard to foresee the
demotion of his beloved London.
After an honorary dinner at the Morgan Library, Jack invited Reading up to
his second-floor study for cigars. He and his partners had to dampen inflated
British expectations. Through the haze of cigar smoke, Jack casually knocked
several hundred million dollars off the loan. “Reading,” Jack said, “I wouldn’t
ask a billion if I were you. I think you’d be wiser to limit your first large bond
issue to half a billion.”36 To Jack’s surprise, Reading consented to a $500-million
(£100-million) issue. After syndicate charges were factored in, the interest rate
was a steep 6 percent. Jack said the House of Morgan would waive any extra
compensation as syndicate manager.
Fascinated by Lord Reading, Jack was preoccupied with his religion:
Lord Reading impressed me enormously. His mind is so clear, and he
sees the bearing of each point so quickly that it was a great pleasure to
discuss things with him. His only drawback was that he was, and of
necessity must be, so much in with the Jews that he takes their point of
view to a certain extent. This of course is natural, but seeing that most of
the Jews in this country are thoroughly pro-German, and a very large
number of them are anti-J. P. Morgan & Co., it would have been desirable if
he had not had quite so close affiliations with them.37
It was a curious letter. Lord Reading’s position as head of the loan mission
should have dispelled any doubts as to his loyalty and dashed notions of a
monolithic Jewish viewpoint; instead, Jack implausibly perceived some common
denominator between Reading and German Jews. In fact, when Reading met
Jacob Schiff, the latter laid down a suicidal precondition for Kuhn, Loeb
participation in the loan—that not one penny could go to England’s ally, Russia.
Reading bluntly replied that “no government could accept conditions which
discriminated against one of its allies in war.”38 In one stroke, Kuhn, Loeb
became persona non grata in London finance, further clearing the way for the
Morgan triumphal march.
Still more damaging was the controversy at Goldman, Sachs, where partners
exercised vetoes in important matters. Loyal to Germany, Henry Goldman
refused to share in the Morgan-sponsored issue, provoking a crisis at the firm
and causing its voluntary exile from wartime finance on Wall Street. According
to Stephen Birmingham, when the “Kleinwort bank in London cabled to New
York to say that Goldman, Sachs was in danger of being blacklisted in England,”
Henry Goldman was forced to resign from the family firm.39 Feelings ran so
high that Goldman and Philip Lehman, dubbed Wall Street’s “hottest
underwriting team,” stopped speaking to each other. For a generation, Jewish
banks on Wall Street were handicapped by their affiliation with Germany.
The $500-million Anglo-French loan was far larger than any bond issue
orchestrated by Pierpont. Sixty-one underwriters and 1,570 financial institutions
marketed the bonds. (The House of Morgan resented not being appointed sole
agent responsible for paying the bond’s interest.) It was an extremely tough
selling job, especially in isolationist sections of the Midwest. To sweeten the
deal, participating banks were allowed to keep some of the money that they
raised on deposit for a while. It was also widely advertised that the money would
be spent only in America. Despite these inducements, only one major bank in
Chicago—where pro-German depositors threatened a boycott—joined the
syndicate, and there were none from Milwaukee. The Morgan partners signed up
many famous individuals, including Andrew Carnegie and even Samuel
Untermyer of Pujo fame, as well as suppliers of war materiel such as the
Guggenheim brothers and Charles Schwab of Bethlehem Steel, who felt obliged
to safeguard their thriving war business. But they couldn’t offset the poor
midwestern performance, and the syndicate was stuck with $187 million in
unsold bonds by year’s end.
To raise additional dollars, the British levied a tax on any dividends received
from American shares, and British citizens rushed to give their shares to the
government. So many securities were tendered that the Bank of England Court
Room was heaped high with certificates. Morgans liquidated $3 billion of these
securities, delicately feeding them into the New York market so as to prevent a
collapse in share prices.
The Anglo-French loan was soon exhausted. Before the war ended, the House
of Morgan had arranged over $1.5 billion in Allied credits. The British would
lavish many encomia on the Morgan role before U.S. entry into the war. In
Morgan Grenfell’s Tea Room hangs a Lloyd George letter of 1917 that says, in
part, “We were fortunate enough to secure the assistance of a firm which have
throughout done everything in its power to protect the interests of the British
Government.”40 Visiting the Corner years later, Lord Northcliffe, the British
press baron, exclaimed, “The war was won within these walls.”41 Lord Moulton,
head of the British Munitions Board, said that Du Pont, Bethlehem Steel, and J.
P. Morgan and Company had rescued the French and British armies in 1915.
Yet, as was always true of Morgan relations with Britain, the public embrace
concealed a fair degree of tension. The British often felt the bank bungled its
political role, however well it handled the financial side. Arthur WilLer, the
London Times correspondent in Washington, described the House of Morgan in
1916: “The most unpopular house in the country, the personification for the
radical West of the malign money power of Wall Street, it has done nothing to
propitiate either the people or the politicians.”42 That year, Jack campaigned for
the Republican presidential candidate, Charles Evans Hughes—which the British
thought unwise. Jack and Harry Davison also treated the new Federal Reserve
Board in a somewhat high-handed manner. Davison, in particular, seemed to
offend the British. He had a brash, decisive manner that inspired subordinates
but could be clumsy and arrogant. The Foreign Office called him “injudicious,”
while Ambassador Spring-Rice said Davison had “all the aggressiveness of the
older Morgan without his genius.”43
Davison either mishandled his relationship with Willard Straight or decided
that the romantic, impetuous Straight would just never fit in at Morgans. Straight
expected to help negotiate with the Anglo-French loan. “I thought I might have
been of service in connection with these negotiations, but I was asked to perform
no work, and this rankled,” he said.44 He was given little responsibility, and the
august House of Morgan didn’t share his interest in poor countries. That
September, at age thirty-four, he resigned from the bank. He had never translated
his precocious China success into a mundane Wall Street setting and was
offended that he hadn’t become a Morgan partner. He preferred polo, golf, and
his outside literary interests to the consuming dedication that was de rigueur at
23 Wall. Shortly after wartime service, in 1918, he died of influenza and
pneumonia. His widow, Dorothy, would help to found the New School for Social
Research in New York and Dartington Hall, an experimental school in South
Devon, England.
By 1917, British credit was practically exhausted. Their salvation was German
resumption of unrestricted submarine warfare against American shipping. When
the United States entered the war, on April 6, 1917, Washington immediately
granted the Allies $1 billion in credit, lifting the onus from J. P. Morgan and
Company. After the United States entered the war, the House of Morgan
expected to be repaid a $400-million loan to Britain from the proceeds of the
first Liberty Loan drive. But Treasury Secretary McAdoo feared Congress would
be upset if government money went to that old Democratic bogeyman—the
Money Trust. To the amazement of Morgan partners, the British government
didn’t seem bothered by the double cross. In his journal, Teddy Grenfell noted
wounded feelings among the Morgan partners: “Although JPM &. Co. had
placed all their resources monetary and otherwise at the disposal of the British
Government, the ministers especially finance showed little appreciation. . . . The
Morgan houses felt very bitterly not only that no appreciation was shown of their
services but also that as soon as the Government had got all their monies which
Morgan & Co. could lend or borrow from friends for England, that the British
Treasury intentionally kept all information from them.”45
During the summer of 1917, Lord Cunliffe, the abrasive, despotic governor of
the Bank of England, argued the Morgan case against the less sympathetic
chancellor of the Exchequer, Bonar Law. It formed part of a larger struggle
between the bank and the Treasury for control of British financial policy. The
row became so vitriolic that Prime Minister Lloyd George threatened to
nationalize the Bank of England. On July 4, Grenfell was summoned to a
Cabinet meeting at 10 Downing Street, and Lloyd George angrily asked him why
the House of Morgan was making such a fuss. (Grenfell referred to Lloyd
George as “our little Welsh goat.”46) In the end, the British Treasury, incensed at
Cunliffe’s behavior, spiked his reelection as governor in 1918. This paved the
way not for a Morgan foe but for Montagu Norman, who took over the bank in
1920 and proved the most influential British ally in Morgan history.
When the United States declared war, Jack was jubilant. With naive, patriotic
generosity, he told President Wilson he could transfer the Export Department
intact to Washington. He was ready to give Stettinius a leave of absence, cover
staff salaries for a time, and forgo commissions. It didn’t dawn on him that this
was politically impossible. Isolationists continued to accuse the House of
Morgan of whipping up pro-war sentiment. And traveling across America,
Treasury Secretary McAdoo noted intense ill will toward the house for having
profited from the munitions purchases.
To head the powerful new War Industries Board, Wilson chose Daniel Willard
of the Baltimore and Ohio Railroad and then Democratic party stalwart, Bernard
Baruch; to appease Morgans, he made Stettinius surveyor general of supplies for
the U.S. Army. Only half-comically, Baruch confessed relief that Pierpont had
spurned his offer of help during the 1907 panic, for had it been accepted, it might
have jeopardized his political prospects under Wilson. There was now a political
stigma attached to Morgan partners. White House aides noted that President
Wilson frowned when he saw Dwight Morrow’s name on a list of prospective
appointees. Although he did appoint him, to the Allied Maritime Council, he
said firmly, “We mustn’t have any more of those men.”47 Morrow would, in fact,
become an important civilian adviser to General Pershing at Chaumont. Harry
Davison, upon being named head of the Red Cross War Council, expected to
assume full powers. When he then clashed with Red Cross organizer Mabel
Boardman, former president William Howard Taft went to the White House to
mediate. Though siding with Davison, Wilson told Taft that “New York bankers
liked unrestricted powers, that they had been used to it in their business . . . but
that in such a matter it was not wise.”48
From the standpoint of later Wall Street history, the government’s wartime
Liberty Loan drives have an important place. The United States sold nearly $17
billion in Liberty Bonds. The spirited promotional campaign brought Charlie
Chaplin and Douglas Fairbanks, Sr., to rallies at the Corner. Treasury Secretary
McAdoo wanted to reach small farmers, businessmen, and workers and thus
created a new generation of American investors. One bureaucratic genius of the
campaign was a Wall Street lawyer, Russell C. Leffingwell, who had been a
neighbor of McAdoo in Yonkers, New York. McAdoo made him counsel and
then assistant treasury secretary in charge of the Liberty Bond drives. He would
later be a famous Morgan partner and a critical link with the Democratic party.
The House of Morgan emerged from the war with greatly enlarged power. For
Jack Morgan, so widely discounted when he took over in 1913, there was a sense
of psychic relief, a knowledge that he had measured up to his father. He told
Paris partner Herman Harjes, “I am glad to say that our firm stands, as it always
has stood, in the middle of things. . . . I feel that I am able in a measure to take
Father’s place in the community and help out in many ways.”49 As a young man
in London, it had amused him when Lloyd’s took out a $2-million insurance
policy on Pierpont’s life. Now he shattered all records by taking out a $2.5million policy on his own.
But Jack’s hypersensitive nature was such that he seemed more disturbed by
criticism than gratified by success. After Wilson rejected this offer of the Export
Department, he sulked and licked his wounds. He was a man of fundamentally
incompatible desires, who wished to be fabulously rich and loved; useful and
appreciated; not only famous but understood fairly by the masses. He had a way
of magnifying enemies. Even as he emerged as the world’s best-known banker,
he still felt embattled. As he wrote in 1917:
I have come to the conclusion that the chief reason of the dislike that exists in
Washington for J.P. Morgan & Co. . . . originates in the fact that we ask for no
favors, that the Democratic party has tried its best to cripple us in every way it
could, that they had Steel investigations, Pujo investigations and Clayton bills
and all that sort of thing, devised and directed with the intention of making life
impossible for us—and still we have gone ahead and got along pretty well . . .
the whole feeling against us is really a political grudge, and they cannot change
our feeling, nor can we change theirs.50
Another perspective on Morgan power came later from Sir Harold Nicolson in
his biography of Dwight Morrow. Nicolson had written that at the outbreak of
the war, the House of Morgan “ceased to be a private firm and became almost a
Department of government”—which he meant as a mighty compliment.51 Yet
Jack thought it insulting to liken his bank to the government. “I have no right to
ask you to alter this,” Jack wrote to Nicolson upon reading it in draft form, “but
it would be interpreted as if we were reduced to the status of a department
subordinate to the Government.”52 The House of Morgan no longer thought
itself subordinate to anyone, not even Washington.
1. The inimitable 1903 photo of J. Pierpont Morgan by Edward Steichen.
Morgan hated the photo and tore up the first print.
2. George Peabody, the miser-turned-philanthropist who founded the House
of Morgan
3. Junius Spencer Morgan, patriarch of the clan, in 1881, at age sixty-eight.
4. 13 Princes Gate, the Morgans’ London townhouse and later residence of
Ambassador Joseph P. Kennedy and his family
5. Corsair II. Pierpont’s sumptuous pleasure craft was later conscripted for
use as a gunboat in the Spanish-American War.
6. The Morgan family at the Karnak temple, Egypt, 1877. The touring party
included a physician, a maid, a nurse, an interpreter, and a French waiter.
Four women in Pierpont Morgan’s life
7. Pierpont’s frail estranged wife, Frances Tracy Morgan, Known as Fanny,
in 1902
8. Pierpont’s mistress, actress Maxine Elliott, as Portia in The Merchant of
Venice in 1901
9. Pierpont’s daughter, Anne, in 1915. Her ménage à trois at Versailles with
two other women scandalized her father.
10. Pierpont’s saucy librarian, Belle da Costa Greene, at a Republican party
meeting in 1916
11. Pierpont (second from right on the stairs) at a house party at the
Harcourts’ Nuneham Park estate. King Edward VII is seated in the center.
12. Pierpont’s brownstone at 219 Madison Avenue, later razed to build an
annex to the Pierpont Morgan Library
Rare photographs of Pierpont Morgan from the Library of Congress
13. Pierpont gazing ferociously at bystanders at the funeral of Senator John
Fairfield Dryden, 1911
14. Pierpont chatting with a friend in October 1907, just before the panic.
This unusual photograph shows how his nose really looked. Most pictures are
touched up.
15. Pierpont meting out rough justice to a photographer, 1910
Four warriors in the Northern Pacific corner, 1901.
16. George W. Perkins, who had just been made a Morgan partner
17. Robert Bacon, the Greek Godof Wall Street, whose nerves gave way
under the strain
18. Edward H. Harriman, whom Pierpont sneered at as a “two-dollar broker”
19. facob Schiff of Kuhn, Loeb, Pierpon’s formidable Jewish rival on Wall
Street
20. Run on the Trust Company of America during the Panic of 1907. The old
Drexel building, pre-1913 home of the Morgan bank, is at the right. The
successor building dropped the name out front.
21. A grim Pierpont arriving at the Pujo hearings accompanied by daughter
Louisa Satterlee and son, Jack, December 1912
The instigators of the Money Trust investigation
22. Louis D. Brandeis, who won national attention with his attacks on
Morgan control of the New Haven Railroad
23. Muckraker Lincoln Steffens, who dubbed Pierpont “the boss of the
United States”
24. Charles A. Lindbergh, Sr., father of the aviator, who introduced a
congressional resolution calling for a Wall Street probe
25. Samuel Untermyer, counsel to the Pujo committee and bogeyman of the
Morgan family
The age of dollar diplomacy
26. Willard Straight, Morgan agent in China, with his heiress wife, the
former Dorothy Whitney
27. Straight, in spats, conferring with the American minister to China,
William J. Calhoun, and Colonel Tsat Ting-Kan
28. Official portrait of J. P. (“Jack”) Morgan, Jr.
29. lack’s wife, Jane Grew Morgan, known as Jessie, as presented to ’ Queen
Victoria in 1898
30. Jack’s estate, Matinicock Point, on East Island, off Long Island’s North
Shore
World War I
31. Morgan lieutenant Henry P. Davison, who negotiated the deal by which
the bank bought $3 billion in supplies for the Allies
32. Russell C. Leffingwell. As assistant Treasury secretary in 1918,
Leffingwell presided over the sale of Liberty bonds.
33. The Paris Peace Conference, 1919. Thomas W. Lamont, standing at the
far left, poses with the Reparations Commission. Herbert Hoover sits at the far
left, and Bernard Baruch sits second from the right.
34. September 1920 bomb blast outside the House of Morgan. The explosion
killed two employees and damaged the building’s northern facade.
35. View of 23 Wall Street, right, in the Jazz Age
36. Thomas W. Lamont striking a debonair pose aboard the S.S. Europa in
1932
37. Giovanni Fummi, the Morgan agent in Rome, whose arrest Mussolini
ordered in September 1940.
38. Benito Mussolini perusing a newspaper. Lamont created a New York
publicity bureau to help bolster il Duce’s overseas image.
39. Dwight W. Morrow returning from the 1930 London Naval Conference
with his wife, Betty
40. Walter Lippmann, lower left, at a Mexican reception with the Morrows
(at head of table) in 1928. Lippmann was on a secret mission to arbitrate a
dispute between Mexico and the Catholic church.
41. Charles A. Lindbergh, Jr., in Mexico in December 1927. The aviator flew
there at Morrow’s invitation. A Mexican official sits between Lindbergh and
Morrow.
42. Charles and Anne Morrow Lindbergh in flying togs, 1931
43. Lindbergh in Nazi Germany in 1937. His admiration for German air
power estranged him from the Anglophile Morgan bank.
CHAPTER ELEVEN
EXPLOSION
THE United States emerged from the First World War with thriving industries
and a record trade surplus, while much of Europe lay in ruins, urgently in need
of reconstruction loans. Sovereign states, city governments, and corporations
flocked to Wall Street, as they had once courted London’s merchant princes.
Because of sterling’s postwar weakness, the British Treasury had to impose an
informal embargo on all foreign loans in the City, leaving wide open the door to
traditional British clients. London had surrendered its historic role of financing
world trade.
Sunning in postwar glory, the House of Morgan was the world’s most
influential private bank, able to select the most creditworthy customers and alone
capable of handling many huge state loans. Its seal of approval guaranteed a
warm reception for bond issues at a time when foreign issues were still new and
unfamiliar to American investors. The House of Morgan spoke to foreign
governments as the official voice of the American capital markets. Its influence
didn’t simply stem from money but from intangibles—cachet, political
connections, and banking alliances.
With the Jewish banks weakened, the Yankee axis of J. P. Morgan-National
City Bank-First National Bank held the keys to the kingdom. For any credithungry finance minister, it was a formidable machinery to defy. In October 1919,
Baron Emile du Marais, a member of a French financial mission, reported on
Morgan power to French president Raymond Poincare: “I have the impression
that Morgan’s has put together here a group which includes all the necessary
elements for the placement of securities, and that one can in no way manage
without their support. It is a fact about which we can do absolutely nothing. In
these conditions, wisdom seems to dictate that we accept the fait accompli; and
try to give Morgan’s the impression that we have full confidence in them.”1 This
analysis is reminiscent of Asquith’s fatalistic, wartime lament that Britain, willynilly, had to reckon with the bank.
Nobody was more emboldened by the new financial power than President
Wilson, who was eager to underwrite liberal dreams with Wall Street money.
This was the same Woodrow Wilson who had made caustic comments about the
Money Trust and snubbed Jack’s offer of the Export Department. In December
1918, he set sail for Europe and received a euphoric welcome. He was the man
of the hour, and it was thought he could mediate among European powers while
rehabilitating Belgium and northern France. At this critical juncture, a
metamorphosis took place in the role of the banker. In Pierpont’s day, captains of
finance had indulged an honest hatred of government. But after World War I,
financial diplomacy shifted into a gray area between business and politics, with
bankers often functioning as their governments’ ambassadors. The advent of the
Diplomatic Age was most striking at the House of Morgan, which would evolve
into a shadow government and move in tandem with official policy. There would
be moments when it acted as a rogue ministry, pursuing its own secret agenda,
but for the most part it faithfully followed Washington. As Jack later said, “We
were always most scrupulous in our relations with our Government.”2
During this period, Tom Lamont acquired his keen interest in foreign affairs.
In 1917, he was already traveling with Colonel House to Europe to study the
European situation. Then Treasury Secretary Carter Glass appointed him as a
financial adviser to the U.S. delegation at the Paris Peace Conference. Lamont
was horrified by a wartime visit to Flanders and remembered the battlefield as a
“Dantaesque inferno,” with fires erupting from smoking artillery.3 The
experience made him a convinced advocate of world peace organizations. He
developed an ardent faith in Wilson’s vision of a League of Nations and funneled
large amounts of money into organizations supporting American entry into the
League.
Lamont’s political beliefs dovetailed with the Morgan bank’s financial
requirements, for as it expanded its foreign lending, it looked for stable
governments, global security, and free trade. The late 1910s would be the heyday
of Morgan idealism. In those years, Dwight Morrow penned a brief study,
entitled The Society of Free States, that examined how nations had negotiated
their conflicts in the past. His daughter Anne later recalled, “The talk I heard
around the family table in my school years was full of enthusiasm for Woodrow
Wilson’s Fourteen Points: ’The right of self-determination’ for nations and ’a
new order of world peace.’ ”4
Against all expectations, the insouciant Lamont dazzled Wilson in Paris.
Wilson told him, “I have more and more admired the liberal and public-spirited
stand you have taken in all our counsels.”5 A new Morgan partner, George
Whitney, said that Wilson seemed to place more trust in Lamont’s financial
judgment than in that of anybody else.6 Indeed, Morgan men were so ubiquitous
at the Paris Peace Conference in 1919 that Bernard Baruch grumbled that J. P.
Morgan and Company was running the show.7 It is worth stressing that it was a
progressive Democratic president who first mobilized the new Wall Street power
for political ends (although the exploitation would become more blatant under
Wilson’s Republican successors). A decade of attacks on the Money Trust
seemed to melt into a rapturous embrace.
Tom Lamont found his métier in Paris and helped to write the financial
clauses of the peace treaty. He developed a vast circle of new friends, including
Philip Kerr, later Lord Lothian and then secretary to Lloyd George and a close
friend of Nancy Astor, and Jan Smuts of South Africa. Lamont would be the ace
financial diplomat of the era. Where Jack Morgan was incapable of guile,
Lamont was fast on his feet and ideologically flexible, able to hint to politicians
of both parties that he sided with them. He was a man of many masks who
played his parts so masterfully that he sometimes fooled himself. He had a gift
for straddling political fences. To Wilson, in a typically artful formulation, he
labeled himself “a poor Republican . . . who has faith in our present Democratic
administration.”8 His tolerance was sometimes indistinguishable from a lack of
conviction and his open-mindedness sometimes had a dash of opportunism. On
domestic economic issues, he was a conventional Republican. But he espoused
enough liberal views on international organizations and civil liberties to make
himself uniquely palatable to the Democratic intelligentsia, who marveled at this
rara avis of Wall Street. By the end of his career, Lamont would count Herbert
Hoover and Franklin Roosevelt among his close friends.
For a generation, Lamont and the House of Morgan were entangled by the
Treaty of Versailles and the problem of German reparations. It was a quagmire
from which they could never escape. At the peace conference, Lamont joined a
subcommittee studying Germany’s capacity to pay war reparations to the Allies.
Since much of the war was fought on French soil—northern France was left a
lunar landscape of bomb craters—the French were implacable about receiving
massive compensation. They had paid reparations to Germany in 1819 and 1871
and wanted their pound of flesh. Compared with the vengeful Allies, Lamont
was less hawkish and recommended that Germany pay $40 billion—only onefifth the French request and one-third the British, but still quite substantial and
the highest among the American advisers.
When the Reparations Commission set the burden at S32 billion, its
magnitude shocked Ben Strong, who foresaw—prophetically—a weaker German
mark and subsequent inflation. Yet Lamont would never renounce his belief that
the reparations burden was quite tolerable and that John Maynard Keynes, in his
famous polemic The Economic Consequences of the Peace, gave the Germans
the impression that they had been penalized and thus only fostered their
resentment and weakened their resolve to pay. This, he thought, paved the way
for Hitler’s rise. Lamont belonged to the school of thought that saw the Germans
manipulating world opinion into a better postwar financial deal than they
deserved. Right through the Second World War, he clung to the belief that the
Treaty of Versailles “was more than just to Germany and less than just to the
allies.”9
Whatever the truth of this complex historic debate, Lamont proved prescient
in his forecast of lukewarm American support for the League. Sensing mounting
isolationism at home, he asked Dwight Morrow to report to him from New York
on sentiment toward the League. When he relayed Morrow’s pessimistic
appraisals, Wilson either pooh-poohed them or seemed puzzled by American
doubts. Lamont plied Wilson with memos advocating tactical alterations in the
treaty, more consultation with Republican opponents, and even a Washington
lobbying effort to pinpoint the position of the dissenting senators and build
bipartisan support. Always sensitive to style, Lamont suggested more humor in
Wilson’s speeches and recommended an “almost childlike language” in
explaining the League covenant.10 Wilson reacted to Morrow’s reports in a highminded but myopic way. “The key to the whole matter is the truth,” he told
Lamont, “and if we can only get the people at home to see the picture as we see
it, I think the difficulties will melt away.”11 By nature a creature of compromise,
Lamont watched in horror as Wilson stuck rigidly to his beliefs. They had a last
wistful trip across the Atlantic together. By November 1919, the Treaty of
Versailles was dead in the Senate, and Wilson was a shattered man. The United
States never joined the League of Nations.
Versailles was a formative event for Tom Lamont, his debut on the world
stage, from which he took away contradictory lessons. On the one hand, the
peace conference left a residual strain of idealism, and Wilson would remain a
sacred figure in his memory. He lauded Wilson’s “delightful personality” and
“ready wit” and his “Scotch mixture of wonderful idealism and stubbornness.”12
Yet he saw that politics was the art of the possible, that Wilson had suffered from
excessive purity, and that the world wasn’t prepared for Utopia. Of Wilson, he
said, “He was a curious character—a great man in so many ways, yet so apt to
stand firm at the wrong moments and give in at the right ones. ”13 In time,
Lamont’s own talent for compromise would become pronounced, so that his own
political tragedy would be the reverse of Wilson’s.
After returning to America, Lamont, imbued with the Wilsonian spirit,
proudly hung pictures of the president and Colonel House over his desk at 23
Wall. He had recently become publisher of the New York Evening Post, and he
departed from a policy of noninterference to insist that the paper adopt a proLeague of Nations stand. As America’s premier foreign lender, the House of
Morgan also had a certain natural affinity with Wilson’s brand of liberal
Democratic internationalism. While American industrialists often remained
protectionist and provincial in their views, bankers became more cosmopolitan
in the 1920s. Only through free trade could countries export and earn foreign
exchange to retire their debts. As had happened in the City in the nineteenth
century, Wall Street became far more outward-looking than the commercial
deposit banks. As exponents of global cooperation, the House of Morgan would
often feel uncomfortable with the isolationist Republicans.
Returning home for the Republican National Convention of 1920, Lamont
was shocked by its smoke-filled rooms, its arrogant isolationism, and its meanspirited xenophobia. He saw America suddenly retreating from the world and
refusing to take responsibility for postwar European reconstruction. In the
election that year, Lamont cast his lone Democratic presidential vote, favoring
Governor James M. Cox of Ohio over Warren G. Harding because Cox endorsed
the League. Even Jack Morgan supported the League, although with evenhanded disgust he boycotted America on Election Day, reviling both the
“jellyfish Republican” and the “pro-German Ohio editor.”14 While the bank
would have intimate relations with the three Republican administrations of the
1920s, there would always be a tension between its sense of global responsibility
and the blinkered vision of the provincial Republicans. Increasingly
multinational in scope, the House of Morgan would fit uneasily into an America
that was tired of European entanglements.
Lamont was negotiating peace at Versailles, Jack was wrestling with
his own private demons. He didn’t want to negotiate with the Germans but only
to see them punished for their “barbarous” misdeeds. In 1917, he wrote a friend
that “after the conduct of the Germans during this war, it would be impossible
for any civilized nation . . . to have anything to do commercially or financially
with people who have shown themselves of such evil character.”15 He said he
would rather have General Pershing march on Berlin with half a million men
than a merciful peace treaty.16 Pierpont Morgan could have acted on such spite,
but postwar Morgan lending would increasingly reflect U.S. interests rather than
partners’ whims. Despite Jack’s bluster, his bank would sponsor the vast loans
that made reparations possible, linking his bank more closely to Germany than
he would have ever dreamed possible.
WHILE
Outwardly, Jack remained the sedate banker, but inside he was fearful and
haunted. His insecurity didn’t end with the armistice. Even in the postwar
atmosphere, it was easy for a prominent banker to feel as if he were a sitting
target for terrorists. The rich grew alarmed by events in Russia—the seizure of
power by Trotsky and Lenin, the assassination of Czar Nicholas II, and the
Bolshevik repudiation of foreign debt. (Barings froze its large Russian deposits
after the Bolsheviks tried to transfer them to Guaranty Trust in New York.)
During the Mexican Revolution, the Mexican government also defaulted on its
foreign debt, and in 1917 it passed a radical constitution that threatened to
nationalize American oil interests.
There were predictions that revolution would spread to the shores of North
America, and the political air grew thick with talk of class warfare and strikes.
During 1919, four million Americans went on strike, with the city of Seattle the
scene of a major general strike. Attorney General A. Mitchell Palmer rooted out
“Reds” and other foreign agitators in the raids that came to bear his name. The
unrest strengthened Jack’s suspicion that “destructive elements” wanted to
smash the industrial machinery. He applauded Massachusetts governor Calvin
Coolidge for suppressing the Boston police strike and Judge Gary for supporting
an open shop during a strike at U.S. Steel.
On May Day of 1919, Jack was one of twenty eminent Americans who
received identical letter bombs. The intended victims were spared when the
packages were intercepted at a New York City post office on account of
insufficient postage. Jack and his daughter Jane were also blackmailed by a
Michigan janitor named Thorn, who claimed he had poisoned them with slowacting, secret microbes; he would hand over the antidote for $22,000. Ordinarily,
Jack might have shrugged this off, but in the tense atmosphere he thought it
advisable to make an example of the blackmailer. Thorn was eventually arrested,
convicted, and spent fifteen months in Leavenworth. By 1921, the bank felt so
menaced by saboteurs that publicity chief Martin Egan suggested that the bank’s
private railway car, the Peacock Point, be given a nondescript name, lest the
association with Morgan partner Harry Davison’s North Shore estate invite
trouble.
The incidents that did occur help to explain the factual basis of Jack Morgan’s
fears, which now drove him to obsessive lengths. Crazy things were happening
around him. In addition, there was the 1920-21 recession, which was perhaps
closer to a depression in its severity. To curb the inflation that followed the war,
Ben Strong of the New York Fed raised interest rates sharply. It was the first
recession deliberately engineered by the Fed to moderate a boom. As
unemployment quintupled to 12 percent, four million people were thrown out of
work, and over five hundred banks failed in 1921 alone.
By early 1920, Jack Morgan had an almost inverted worldview: the rich struck
him as impotent, the masses as all-powerful in the hands of demagogues. In this
frightened state of mind, he hired a private detective, William Donovan, a lawyer
and a highly decorated officer in World War I. (Later known as Wild Bill
Donovan, he would head the Office of Strategic Services, the forerunner of the
CIA.) Intelligence work burgeoned with the spread of radicalism around the
world. Jack asked Donovan to investigate the Communist International
(Comintern), formed in 1919, which had singled out bankers as archenemies of
the working class. As a former banker to Czar Nicholas II, Jack was watching
the Bolsheviks with extra apprehension. He also asked Donovan to dig up
information about the new nations emerging from the old Austro-Hungarian
Empire, for it was thought that political chaos in Central Europe could be a
breeding ground for communism. Donovan’s investigation was fairly prosaic—
he uncovered only dusty papers and speeches—but the job launched him in high
finance and accustomed Jack to a new manner of dealing with his enemies.
Two other events in 1920 contributed to Jack’s sense of omnipresent danger.
On Sunday morning, April 18, an anarchist and escaped mental patient named
Thomas W. Simpkin wandered into Saint George’s Church on Stuyvesant
Square. The London-born Simpkin had been obsessed with death since the
sinking of the Titanic. He later said he had come to America to kill Pierpont
Morgan, only to discover he was already dead. On this Sunday morning, he was
drawn to Saint George’s by its beautiful chimes. “The chimes were playing and I
was soothed,” he said. “Then I went into the church.”17 He knew that it was the
church of the Morgan family.
Jack’s brother-in-law Herbert Satterlee was there, as was Dr. James Markoe,
friend and physician to the Morgans. As Markoe was passing the collection
plate, the dingy little Simpkin pulled out a gun and shot him point-blank in the
forehead. The collection plate fell to the floor with a noise “like crashing
glass.”18 The rector, Karl Reiland, flung his Bible to the pulpit and leapt over the
chancel rail. Although the organist stopped playing, the church choir continued
to sing angelically as vestrymen in cutaways pursued Simpkin; they caught him
in Stuyvesant Square. By coincidence, Dr. Markoe was rushed to the Lying-in
Hospital, the hospital he had persuaded Pierpont to endow, and died there a few
minutes later. As it turned out, Simpkin had mistaken Dr. Markoe for Jack
Morgan. When interrogators asked him why he thought of killing J. P. Morgan,
Jr., Simpkin replied that he had heard that Morgan and a Congressman Miller
had said that the International Workers of the World ought to be killed.19
Then came the blast of September 16, 1920. Shortly after noon, a horse-drawn
wagon carrying five hundred pounds of iron sash weights pulled up on Wall
Street between Morgans and the U.S. Assay Office across the street. Suddenly it
exploded, blowing holes in the pavement, bursting like shrapnel through a
terrified lunchtime crowd, killing thirty-eight people and injuring three hundred.
Walking by 23 Wall, the young Joseph P. Kennedy was hurled to the ground.
Throughout a half-mile radius, the blast punched out windows, including those
on the Wall Street side of Morgans. Fire and a weird greenish smoke belched
upward, igniting awnings as high as twelve stories above the street. Inside the
New York Stock Exchange, panicked traders fled the imploding windows as
shattered glass burst through the heavy silk curtains.
In Once in Golconda, John Brooks describes the chaos inside the House of
Morgan:
The cavernous interior of J.P. Morgan & Company, the office most
seriously affected, was a shambles of broken glass, knocked-over desks,
scattered papers, and the twisted remains of some steel-wire screens that the
firm had providentially installed over its windows not long before, and that
undoubtedly prevented far worse carnage than actually took place. One
Morgan employee was dead, another would die of his wounds the next day,
and dozens more were seriously injured. Junius Morgan [Jack’s older son],
sitting at his desk near the north windows on the ground floor, had been
pitched forward by the blast and then nicked by falling glass. . . . Another
young Morgan man, William Ewing, was knocked unconscious, and awoke
a few minutes later to find his head wedged in a wastebasket.20
The blast left glass strewn thick as sugar across the main banking floor. Bill
Joyce, seated on a high stool, was killed by an iron sash lodged in his body; John
Donahue died of burn wounds. A row of pockmarks was engraved deep in the
Tennessee marble on the Wall Street side of the building. Whether as a badge of
pride or a memorial to its two dead employees, the Morgan bank has never
repaired the marble blocks, and they are still clearly visible to pedestrians on
Wall Street. One partner later cited the inordinate expense of repairing them but
then conceded, “It is right and proper that they should stay there.”21 For a
generation, bankers asked, Where were you when the blast occurred?
Because the blast occurred in September, Jack was at his Scottish shooting
lodge. But other partners were gathered in his office at the time, which, luckily,
faced Broad Street. A visiting Frenchman, laughing nervously, said he felt as if
he were back in the war. To inspect the carnage, George Whitney went into the
street. On the bank’s scarred north wall, he saw a macabre sight: “One of those
scars had a woman’s head and hat plastered up against it. I’ll always remember
that. It hit her so hard that it just took her head off and it stuck right on the
wall.”22
In another memory from that dreamlike day with its montage of slow-motion
horrors, Whitney recalled that Dwight Morrow, a man of legendary
absentmindedness, had a noon luncheon appointment with a government official.
As the smoke cleared, Whitney saw Morrow trotting punctually downstairs and
greeting the official as if it were an ordinary business day. The two strolled off
for lunch at the Bankers Club, threading their way among dead bodies, firemen,
overturned cars, and craters gouged in the street. “They didn’t pay any attention
to it, not knowing what they were doing 1 suppose,” said Whitney.23
In the weeks ahead, J. P. Morgan and Company muddled through, with canvas
sheets draped over its windows and a shaky dome, propped up by scaffolding,
above the central banking floor. For this most foppish bank, it was a strange
interlude, with many employees wearing slings and bandages to work. Whether
Morgans or the Assay Office was the real target of the blast was never known; it
went down as a great unsolved crime. It may have been a spontaneous chemical
accident, although it coincided with a rash of anarchist acts and has always been
attributed to anarchists. The new Stock Exchange building at 11 Wall Street was
under construction at the time, which may have accounted for there being
explosives in the area. The bank hired the Burns International Detective Agency,
which offered a $50,000 reward for information about the incident; nobody ever
collected the money.
As soon as the explosion occurred, thirty private detectives took up positions
around Jack’s brownstone on Madison Avenue. Jack construed the explosion as
an attack against Wall Street rather than an attack against the bank. Yet along
with the 1915 shooting, the Thorn case, the Markoe shooting, and the million
and one crank letters, it must have fed his sense of vulnerability and his growing
apprehension of conspiracies.
This period of turbulence provides the backdrop for Jack’s deepening antiSemitism, which played an important part in his outlook and became his
shorthand explanation of many incidents, particularly attacks against his family
and firm. His anti-Semitism was of a familiar variety. He saw Jews as a global
fifth column feigning loyalty to host governments while furtively advancing
foreign plots. He generalized the presence of the German-Jewish banks on Wall
Street into a broader phenomenon. Like his father, Jack was extremely warm and
affectionate toward those within his own circle of intimates, but, again like
Pierpont, he often showed coldness and suspicion toward outsiders. In his anti-
Semitism, Jack never saw himself as lashing out at the weak; instead, his
enemies were more powerful than he, a mere Morgan, and deserved what they
got.
In May 1920, serving as an overseer of Harvard University, he rushed to alert
President A. Lawrence Lowell of the grave danger posed by a board vacancy:
I think I ought to say that I believe there is a strong feeling among the Overseers
that the nominee should by no means be a Jew or a Roman Catholic, although,
naturally, the feeling in regard to the latter is less than in regard to the former. I
am afraid you will think we are a narrow-minded lot, but I would base my
personal objection to each of these two for that position on the fact that in both
cases there is acknowledgement of interests or political control beyond and, in
the minds of these people, superior to the Government of this country—the Jew
is always a Jew first and an American second, and the Roman Catholic, 1 fear,
too often a Papist first and an American second.24
From this letter, one may discern that Jack had in mind his wartime feud with
Kuhn, Loeb, now blown up into a universal theory. It’s ironic that he would soon
float the biggest German loan in American history and later be decorated by the
Vatican for his investment advice.
In 1920, convinced of an anti-Morgan cabal among the German-Jewish
bankers, Jack recruited a man named Charles Blumenthal to infiltrate their
activities. For two years, Blumenthal reported to Jack periodically. His methods
have not been documented, but one target was clearly Samuel Untermyer, whom
Jack still planned to punish for his role in the Pujo hearings. Another was the
German-born Otto Kahn, the Kuhn, Loeb partner and financial angel behind the
Metropolitan Opera. Far more than Jacob Schiff, the ostentatious Kahn mingled
with tony society, earning the nickname of the Flyleaf between the Old and the
New Testaments.25 Kahn had subscribed generously to the 1915 Anglo-French
loan, and Jack had even praised his patriotic wartime speeches, which were
widely circulated by the Allies. Kahn had even been reviled by the kaiser as a
traitor to his native country. Then, in 1919, Jack learned about a small loan to
several German cities made by Kahn and Kuhn, Loeb early in the war. Kahn was
still a naturalized British citizen, and Jack thought the loan prima facie evidence
of treason. Hopping mad, he wrote Grenfell, “Great Britain cannot shut him in
gaol, he now being an American citizen, but it does not strike me as being highclass conduct, and I think it should be known.”26 Kahn’s wartime patriotism was
forgotten.
Pursuing his quarry, Jack sought proof linking Kahn with the German loan. He
apparently got it from Blumenthal in 1920. He wrote Grenfell, “Enclosed is a
photographic copy of a letter from Lindheim, who is a Jewish lawyer here in
New York with 50 connections with the Untermyer tribe, to Dr. Albert, which, I
think, quite sufficiently identifies Mr. Otto Kahn with the proposed German
cities loan.”27 It seems both Jack and Teddy Grenfell were swapping intelligence
with British authorities, because Grenfell already knew Dr. Albert had spent a lot
of German money during the early stages of the war.28 A couple of years later,
the bank got a London source to consult Admiralty records on Samuel
Untermyer.
Another possible source of Jack’s information was Henry Ford’s Dearborn
Independent, which served as mouthpiece for Ford’s bizarre anti-Semitic views
and was distributed through Ford dealerships around the country. In 1921, the
paper conducted a campaign against “hyphenated Americans”—immigrants of
allegedly dubious loyalty to the country. In a warmly fraternal note to the editor,
Jack endorsed the campaign: “Owing to the war, I became fully aware of the
danger, to the community, of hyphenated Americans; and it seemed to me that
the Jews were the only lot of that class of people who had been able to do their
work quietly and were steadily working to maintain their hyphenated attitude of
mind without calling public attention to it.”29 Jack said he would make
information available to the Independent. When Charles Blumenthal traveled to
Detroit to consult with Henry Ford on the Jewish menace, Jack followed up with
a note inviting Ford to visit him in New York.
Jack’s confused anti-Semitism was intermingled with business rivalries. The
Yankee and Jewish banks still formed warring groups on Wall Street. In 1921, a
former Justice Department agent tipped off the bank to a plan by Jewish bankers
and German industrialists to restore German fortunes. He told how a Mr.
Lehman and a Mr. Rothschild met with Kuhn, Loeb partners in New York to
perfect this plot and how they hoped the new combine would drive J. P. Morgan
and Company out of business. This may well have happened and been dressed
up in alarming, conspiratorial language. Jack had a way of looking at the
Yankee-Jewish rivalry on Wall Street and seeing it in conspiratorial and religious
terms rather than in the more mundane terms of business.
Relations between Jack and Blumenthal soon deteriorated. Jack advanced him
money for a home mortgage, and he failed to make a timely payment. For a
banker such as Jack, deadbeats occupied a lower rung in hell than Jews.
Relations grew frosty. In 1922, Blumenthal’s payments were phased out. Later,
when Blumenthal tried to use Morgan’s name to raise cash, Jack denied he had
ever employed the man. Was this pique—or Jack covering his tracks?
In any event, the hocus-pocus of German plots and Jewish bankers would
soon seem silly and irrelevant. No Jew on Wall Street ever did as much for
Germany as Jack Morgan would. Even as he terminated relations with
Blumenthal in 1922, the State Department was urging him to sit on a committee
of bankers who would outline the conditions needed for a massive German loan.
After years of doggedly hunting German partisans, Jack Morgan would find
himself Germany’s master banker. The phantom he had been pursuing all those
years turned out to be himself.
the war, Jack had confounded critics who mocked him as a
figurehead, a pale, plodding imitation of Pierpont Morgan. His British
connections strengthened relations with the Allies, as did the partners he
recruited for Morgan Grenfell. Having worked steadily in wartime, he continued
to work eight or nine hours a day into the early 1920s. Yet he was a banker
malgré lui, lacking the giant, locomotive energies that had propelled his father.
As he readily acknowledged, he was a loafer, a studious amateur in the style of a
British country squire. He loved gardening, yachting, reading detective fiction—
activities of a mildly sedative nature. Once, in an indolent mood, he likened his
brain to a soft, overboiled cauliflower. Also, he was haunted by his father’s
breakdowns, illnesses, and death, which he associated with politics and
overwork. So he was ready to rely on a strong lieutenant.
Jack was a great fan of Harry Davison, who seemed the clear favorite as
Morgan overlord in the postwar period. Davison had natural authority; Paul
Warburg of Kuhn, Loeb once said that “men enjoyed following him.”30 His
dedication to the bank was exemplary, as is attested by a cable that he sent to
Nelson Aldrich after Pierpont died. Davison’s house, Peacock Point, had just
burned to the ground and he would spend the summer on a houseboat while it
was being rebuilt; he cabled Aldrich, “Loss of house mere incident in view of
other crushing loss.”31
Davison’s standing was greatly enhanced by the war. As head of the Red
Cross War Council, he was elevated in 1919 to the presidency of a global league
of Red Cross societies; during his Red Cross tenure, eight million volunteers
were signed up. Many stories testify to Davison’s massive self-confidence. At
one Red Cross rally, he heard former president Taft say, “It gives me great
pleasure to introduce to you one of our most distinguished citizens, a man who
would rather face a German battery than an audience.” Davison was halfway out
of his seat when Taft thundered, “General Pershing!”32
Another Davison story concerns a trip he made to London in 1918. Upon
arriving, he was informed that King George V wished to see him. En route to
DURING
Buckingham Palace, he was briefed on protocol by the king’s equerry and given
a short list of royal taboos. He wasn’t to cross his legs, offer his hand first, or
depart until dismissed by the king. Davison spent a pleasant hour with His
Majesty, then, suddenly remembering another appointment, sprang to his feet—a
breach of protocol. Who but a Morgan partner would be so blase about the king
or not wish to prolong the experience? Buckingham Palace was just another stop
on a busy itinerary; the House of Morgan had become aristocracy in its own
right.
After the war, Davison’s prestige was such that friends mentioned him as a
possible presidential candidate. Davison himself demurred, saying it “could
never be,” apparently because he had been involved in an extramarital affair that
ended tragically in the spring of 1915.33 He was afraid the story would be
dredged up. It turns out to be a grisly one. Davison and his wife, Kate, were
close friends of a couple named Boocock, who had been neighbors in
Englewood, New Jersey. Howard Boocock was treasurer of the Astor Trust
Company. Davison was having an affair with Adele Boocock, a close friend of
his wife’s, and Howard Boocock was at first unaware of the liaison.
When Howard Boocock did learn of the affair, he became deranged, although
in a style appropriate to his position. On March 22, 1915, he came home from
the bank early and rather agitated. Yet he and his wife dressed for dinner as usual
at their East Seventy-fourth Street town-house, and the servants noticed nothing
untoward during the meal. Afterward, Howard retired briefly to the upstairs
library to read his newspaper, while Adele played the piano in the drawing room
below. Then Howard joined her. The servants heard the piano music stop
abruptly, followed by two pistol reports. When the terrified maids rushed into the
room, they discovered that Howard had shot Adele behind the right ear with an
old army revolver; then he had shot himself above the left eye. The first person
the distraught servants thought to telephone was Adele Boocock’s best friend,
Kate Davison. It fell to Kate to notify the Boococks’ relatives. Kate agreed to
take in the two Boocock children—who had slept through the shooting—and the
Davisons paid for their education as well. This action was reminiscent of the
Davisons’ earlier generosity in taking in Ben Strong’s children. The double
Boocock shooting was one of the sensational “unsolved” crimes of 1915. A
coroner’s jury concluded that Howard Boocock went haywire from worry over
the possibility that he was suffering from intestinal cancer. The truth would
remain buried until the present.34
In 1920, when Harry Davison returned to the Corner from the Red Cross, he
had lost his magnetic, buoyant charm. He complained of queer headaches and
sleeplessness and took a year off with his family, which they spent at Magnolia
Plantation, his estate in Thomasville, Georgia. A photograph of Davison on a
picnic there shows him smoking a blunt cigar and wearing a white shirt and a
dark three-piece suit; even in poor health and on a rustic outing, a Morgan man
couldn’t let his image languish. But the stay didn’t put an end to his headaches
and dizziness. In August 1921, Davison was diagnosed as having a brain tumor.
He was a manly type who refused to become an invalid. One day at Peacock
Point—his sixty-acre Greek-columned estate on Long Island’s North Shore that
nearly formed a continuous line of property with Jack Morgan’s and George
Baker’s estates—he and Dr. Frederick Tilney were watching a school of
porpoises in Oyster Bay. Tilney remarked that he had always wanted a porpoise
brain for his research. “Bring me the elephant rifle and tell them to have the
motor boat ready for us at once,” Davison ordered a servant.35 Davison went out
and shot his porpoise.
Harry Davison died in May 1922, at the age of fifty-four, during an operation
to remove the tumor. He left an estate estimated at $10 million, including $4.5
million destined for his son, Frederick Trubee, who had been confined to a
wheelchair since his college days. During a summer off from Yale during the
war, Trubee and several classmates had formed the first naval reserve air unit,
and Davison had bought his son a plane. As Trubee participated in a
demonstration show at Peacock Point, the plane’s rear engine came loose and hit
him in the head, leaving him a paraplegic. His father’s special bequest was
meant to allow him to pursue a political career without any material distractions.
Trubee became an assistant secretary of war for aviation in the Coolidge and
Hoover administrations and served as president of the American Museum of
Natural History. As indomitable as his father, in spite of his handicap he played
tennis and shot big game for display in the museum.
At 23 Wall Street, Davison’s death left the path to power unobstructed, and
Tom Lamont strolled into a leadership position. Deeply indebted to his mentor,
Davison, Lamont perpetuated a Morgan tradition of building monuments to dead
kings by writing a hagiographic biography of Davison. Of his other role model,
Pierpont, Lamont wrote, “He was not interested in little matters, conducted or
proposed by little men.” He viewed Pierpont’s reign as one of a vanishing
gentility—“a kind of golden age of chivalry in affairs.”36 This early exposure to
Pierpont and Davison gave Lamont a vision of the banker as statesman and
empire builder rather than as bureaucrat or paper pusher.
During the 1920s, Tom Lamont would be the brains of the Morgan bank and
the most powerful man on Wall Street. When journalists talked of “prominent
banking opinion,” they had usually been speaking with Lamont. A Wall Street
saying held that “Mr. Morgan speaks to Lamont and Mr. Lamont speaks to the
people.”37 In his early banking days, Lamont had been deferential, even
obsequious toward his elders, content to play the serviceable courtier. He always
knew how to handle the Morgans. Both Pierpont and Jack were brooding loners
who liked charming extroverts of an equable disposition. Pierpont had the
sociable Bacon and Perkins; Jack, Davison and Lamont. Where the Morgan
family was intensely private and domestic, these regents lent the bank a highsociety gloss. And Lamont was perceptive enough to give Jack the confidencebolstering praise that had been withheld by Pierpont.
It is a mystery how Tom Lamont, a poor parson’s son, became everybody’s
image of Wall Street elegance. The first Lamont came to America from Scotland
in 1750. Lamont’s father was a former Greek professor and a Methodist parson
(Tom would later become a Presbyterian). The senior Lamont had an Old
Testament face—a broad, square forehead, full beard, and eyes that burned with
severity. He banned dancing, cards, and even neighborhood Sabbath strolls for
the family; Lamont’s mother, luckily, was gentler. Tom spent a thrifty boyhood
in upstate Claverack, New York, plotting his escape and devouring novels. He
attended both Phillips Exeter Academy and Harvard on scholarship. He admired,
but wasn’t awed by, the wealthy boys he met. He was a completely self-invented
figure and as such would be emblematic of an age based on wild speculation and
a frothy optimism. Like Jay Gatsby, he lived in the manner of a poor boy acting
out his most lavish fantasies. He was so successful at playing the aristocrat that
he passed for the genuine article.
Short and slim with rounded shoulders, smiling eyes, and thinning hair,
Lamont was often photographed before his office fireplace, hands in pockets,
relaxed, and debonair. Usually he wore an amused, searching expression, as if
inviting intimacy yet skeptically probing his guest. He looked at the world
closely, as if sizing it up, taking the measure of someone in a glance. He seemed
immune to depression, congenitally cheerful, and unflappably poised. His
favorite expression was “easy does it” and his son, Corliss, said he never saw his
father angry. He had a staggering capacity for work, and his voluminous papers
at the Harvard Business School resemble the work of ten busy men. Tom
Lamont was a prodigy—in business, finance, and diplomacy—and his career,
dazzling in scope, would rival that of Pierpont Morgan himself.
Lamont had a genius for friendship and was irresistible to the literary world.
He was a newspaper publisher and a large shareholder in Crowell Publishing, the
only Morgan partner drawn to that industry. When British poet John Masefield
toured the United States during the war to generate sympathy for England, he
became so attached to Lamont that he dedicated his War and the Future to him.
Lamont also befriended Walter Lippmann, John Galsworthy, and H. G. Wells.
He had a writer’s itch to record his thoughts and preserve them for posterity,
dashing off hundreds of personal letters monthly.
His conviviality wasn’t restricted to celebrities. Each spring, he holed up with
three old college chums in Atlantic City, where they fished, played bridge, and
talked. He maintained hundreds of relationships—like juggler’s balls, he kept
them magically aloft—and each acquaintance felt especially singled out by
thoughtful gifts, cards, and invitations from 23 Wall.
If Tom Lamont assumed Morgan royalty with such ease, it had much to do
with Wall Street’s extraordinary self-confidence in the twenties and the banker’s
new diplomatic role. Lamont was a born politician and meshed exquisitely with
his historical moment. In 1928, the Egyptian king said to him, “Mr. Lamont, I
will wager I am the only head of a foreign state who has ever received you
without asking for a loan for his government.”38 He was probably correct. Later
Lamont appeared on a list of sixty-three citizens who ruled America and would
certainly have made far shorter lists. In 1937, Ferdinand Lundberg, the radical
journalist, would say that Lamont “has exercised more power for 20 years in the
western hemisphere, has put into effect more final decisions from which there
has been no appeal, than any other person. Lamont, in short, has been the First
Consul de facto in the invisible Directory of postwar high finance and politics, a
man consulted by presidents, prime ministers, governors of central banks.”39
Overheated prose aside, Lundberg erred in the right direction.
Lamont had no ordinary dreams can be seen from a 1916 effort to
induce Henry Ford to take his car company public. The move was not
accomplished until 1956, after Ford’s death. The House of Morgan, with its large
stake in railroads, had been myopic in recognizing the importance of the
automobile industry, and Pierpont had rebuffed an early Ford request for
financing. Then George Perkins lost a chance to finance General Motors in 1907,
when he sneered at William Crapo Durant’s forecast that sales would soar to half
a million automobiles per year and cars would someday outnumber horses on
America’s streets. For turn-of-the-century Wall Street, cars were rich men’s toys,
plagued by unreliability and poor roads. This attitude rankled Henry Ford and
reinforced his contempt for Wall Street bankers.
By 1916, the car companies had acquired new respectability on Wall Street.
General Motors declared its first stock dividend—the largest in New York Stock
Exchange history—and early skepticism turned to voguish enthusiasm. Henry
THAT
Ford had introduced the assembly line in his Highland Park plant and in 1914
declared a $5, eight-hour day for his workers—terms generous enough to draw
twelve thousand job seekers. Ford now cranked out over half a million Model Ts
annually, and Lamont saw the chance for a splashy deal in the Pierpont tradition.
That the Senior’s ghost hovered in Lamont’s mind was clear from a letter he
wrote to a Ford associate in which he stated that if Ford took his company
public, there would be “nothing just like it since the Steel flotation 15 years
ago.”40 As a rule, Ford opposed public ownership and thought shareholders
should work for the company. Nevertheless, he invited Lamont to unite the “best
ideas” of J. P. Morgan and Ford. What blend of guile and geniality could tame
Henry Ford?
In a memo, Lamont flattered but provoked Ford. He began: “You have the
premier motor car industry of the country and of the world. . .. From nothing you
and your associates have built it up to its present splendid proportions.” With
Ford softened up, Lamont became shockingly blunt: “The present make-up of
your company is your only weakness. So long as the control of the company
rests absolutely in your hands, just so long is the future of the business
dependent upon the life of one man. . . . There must . . . come to you moments of
almost deep oppression for the responsibility that you have to carry day by day.”
Having expressed sympathy, he stirred up anxiety, pointing to potentially
troublesome minority shareholders. Then came the proposal itself, wrapped in a
delicate tissue of jargon. Lamont suggested a “large financial operation” that
might relieve Ford of burdensome responsibilities—in short, the first public
offering of Ford stock.41
In a second letter, Lamont drew a parallel between Ford’s sale of his company
and Carnegie’s sale of his steelworks to U.S. Steel. Since Ford was an
individualist of the Carnegie type, it was a smart analogy. Lamont proposed that
Ford, like Carnegie, retain a substantial interest in the company, holding senior
debt “of the highest character, insuring handsome and stable returns to you and
your heirs, or nominees, for years to come”—Lamont liked this tony style with
fancy clients. But once he had advanced his idea, he backed off and pretended to
offer his idea impartially for Ford’s consideration. A few weeks later, Ford
cordially acknowledged the letters, expressed interest, but let the matter lapse. It
was a noble failure, in the end showing only Lamont’s fearless ambition and his
rare power to manipulate words.
After the Ford proposal was rejected, the House of Morgan stayed on the alert
for opportunities in the automobile field. One finally came, through the Morgan
link with the du Ponts, whose explosives and chemical business had profited
from the Morgan Export Department. The war left the du Ponts awash with cash
and with large paint, varnish, and artificial-leather manufacturing plants. They
saw a potential market for these products in cars and so accumulated General
Motors stock until in 1919 they held a 23-percent stake. They had every spot on
the GM finance committee save one, that of founder William Crapo Durant.
A handsome, sporty man with a winsome grin and a flair for invention, Durant
had started out as a rich buggy manufacturer. In September 1908, after being
turned down by George Perkins, he financed the new General Motors Company
himself, merging the car operations of Ransom E. Olds and David Buick and
subsequently acquiring Cadillac. Unlike Henry Ford, who stamped out endless
Model Ts, Durant favored a diversified product line. He was a persuasive,
charming character—he “could coax a bird right out of a tree,” Walter Chrysler
once said—but a disastrous manager, impetuous and erratic.42 This son of a
failed bank clerk was also an inveterate stock market gambler whose specialty
was GM stock itself. Lamont said he tossed around millions as if they were
billiard balls.
In 1920, J. P. Morgan and Company sponsored a $64-million stock offering to
finance a General Motors expansion. To please the du Ponts, the bank retained a
sizable block and privately placed the remaining shares in safe hands. Then Ben
Strong at the New York Fed engineered the 1920 recession. Henry Ford slashed
car prices, and unsold GM cars piled up at dealerships. As GM stock plummeted,
the underwriters—including the House of Morgan, the du Ponts, and Durant
himself—struggled with huge losses in unsold shares. Durant had also formed a
pool to prop up GM—a stock syndicate kept secret from the du Ponts and J. P.
Morgan.
Cool as a flimflam artist, Durant pretended to take the disaster in stride. He
didn’t slacken his opera attendance, and he affected a cavalier air. Meanwhile, he
faced ruin, for he had used his huge holding of GM stock as collateral for loans.
If he had to sell stock to pay creditors, he would not only collapse the stock price
but panic the Exchange and ruin GM’s credit. To make matters worse, he had
freely lent GM shares as collateral for other people’s borrowings. If he were
ruined, he would ruin many others at the same time.
Where the du Ponts trusted Durant, Dwight Morrow and other Morgan
partners were suspicious. As GM shares broke below 20, Durant kept trying to
hold back the tide by buying up more shares on margin. He continued to deny
that there might be a problem. As the stock dropped as low as 12, his losses
steadily mounted. By the night of November 18, 1920, Durant needed close to
$1 million to meet margin calls before the market opened the next morning. Like
Henry Ford, Durant despised bankers, viewing them as complacent men with
tunnel vision who plundered the inventions of more original minds. Now he had
to phone the House of Morgan and ask whether they would buy his GM stock at
the closing price of $12 a share. Pierre du Pont and the Morgan partners, who
thought Durant an incompetent, feared a market crash unless he were rescued.
When Dwight Morrow, George Whitney, and Tom Cochran went to Durant’s
Fifty-seventh Street offices, they found a scene out of a melodrama. His debts
had bulged to an extraordinary $38 million, and his anteroom was crowded with
creditors demanding repayment. The Morgan partners saw a possible repeat of
the 1907 panic, with Durant defaults shutting down a string of brokers. In a
frenetic, all-night rescue session, the Morgan men bought up Durant’s shares at
$9.50 per share—a steep discount from the closing price. The du Ponts put up $7
million, and the House of Morgan raised another $20 million to save Durant
from margin calls. By dawn, a new company had been formed to buy Durant’s
stock. Durant’s share of the new company was only 40 percent, while the du
Ponts held 40 percent, and the Morgan-led bankers took 20 percent as their
commission. Pierre du Pont was ready to deal leniently with Durant, but the
pitiless Morgan partners insisted that he resign from GM. Overnight, the du
Ponts and J. P. Morgan and Company had kidnapped an industrial empire. Two
weeks later, Pierre du Pont emerged from retirement to become president of
General Motors, a position he held until Alfred P. Sloan, Jr., replaced him three
years later.
It was a double coup in Morgan history, for it confirmed the bank’s
relationship with General Motors and won the loyalty of the du Ponts. As Pierre
du Pont wrote to his brother, Irenee, “Throughout the whole transaction the
Morgan partners have appeared to the greatest advantage. They threw
themselves into the situation wholeheartedly, stating at the start that they asked
no compensation. They have acted with remarkable speed and success, the
whole deal involving $60 million or more, having planned and practically
completed it in less than 4 days.”43
What about William Crapo Durant? An unreconstructed plunger, he lost half
his net worth in the 1929 crash. In later years, he ran a bowling alley in Flint,
Michigan. Poor and almost forgotten, he died in New York in 1947.
the 1920s, a cash-rich America embarked on a binge of buying
foreign bonds, a new experience for a country that had long relied on European
capital markets to finance its own development. The investing fad had begun
when the Treasury sold Liberty and Victory bonds in denominations as small as
$50, enticing a public new to buying bonds. After the war, the habit of investing
DURING
persisted. If Americans traditionally put their money into savings banks,
insurance policies, and old mattresses, now they bought bonds en masse.
Brokerage houses encouraged Americans to think of themselves as potential
tycoons, global benefactors, embryonic J. P. Morgans.
The big New York City banks scrambled for the new business. National banks
were barred from underwriting and distributing securities, but they could bypass
such restrictions by creating separate securities subsidiaries. Chase, National
City, and Guaranty Trust opened such affiliates. They sent out thousands of
agents across the country, plying investors with a dizzying array of foreign
bonds from Brazil and Peru, Cuba and Chile. At the same time, many American
banks invaded overseas markets. Before the 1913 Federal Reserve Act, only
state-chartered banks could have overseas branches—one reason why J. P.
Morgan and Company had an enormous head start with foreign clients. Now
nationally chartered banks could do the same. The glad-handing, fast-talking
American banker became a figure of folklore around the world.
In a burst of activity, National City went into Russia (where its branches were
confiscated by the Bolsheviks), set up a thriving business in China, and
established branches in Buenos Aires and Rio de Janeiro. Where Barings had
long been dominant in Argentinean business, it was overtaken in the postwar
years by National City, J. P. Morgan and Company, and Kuhn, Loeb. At the same
time, the City was paralyzed by the Treasury embargo on foreign loans and lost
many long-standing sovereign clients. When Argentina invited Barings to share
management of a $40-million loan with J. P. Morgan in 1925, the Treasury
embargo forced Barings to pass on the large financing.
Washington watched the investing craze with growing fascination and
wondered how to exploit it politically. Even after a Republican president, Ohio
newspaper publisher Warren Harding, captured the White House in 1920, his
laissez-faire ideology didn’t stop his administration from trying to mobilize the
new Wall Street power. The paradox of the Roaring Twenties was that three freemarket Republican administrations would confer new, semiofficial status on
foreign lending, assuming the right to veto loans—something no Democratic
administration would have dared to do, lest it be accused of socialist tendencies.
The driving force behind the new loan policy was Secretary of Commerce
Herbert Hoover. Hoover saw a precedent in Wilson administration policy toward
Russian and Chinese lending, where the government had maintained a close eye
on the bankers. At a White House conference on May 25, 1921, President
Harding told Tom Lamont and other Wall Street bankers that henceforth all
foreign loans had to be certified by the State, Treasury, and Commerce
departments as being in the national interest. The secretaries in question—
Charles Evans Hughes, Andrew Mellon, and Hoover—were there to back him
up. Morgans had to notify other banks about the arrangement. Afterward, as
spokesman for the influential private banks and trust companies, Jack Morgan
pledged to Harding that the bankers would “keep the State Department fully
informed of any and all negotiations for loans to foreign governments which
may be undertaken by them.”44 For a pro-business administration, it was an
astounding extension of governmental power. Carter Glass, now a Virginia
senator, denounced the violation of bankers’ rights.
During the Republican-dominated 1920s, bankers probably attained their peak
of influence in American history. It would be the heyday of Morgan power. Yet
the bank’s relations with the White House were never smooth, however much
collusion and back scratching the radical pamphleteers might have discerned.
From the outset, Morgan partners thought Harding a simpleton, inadequate to the
challenge of postwar reconstruction. Upon Harding, Tom Lamont would later
deliver a scathing judgment, seeing him as a “pathetic figure . . . the last man in
the world to lead 120 million people from the darkness and confusion of World
War I out into the light.”45 Even Jack, who was relieved by the Democratic rout
and rushed to offer his services to the president, sniped at Harding as a “wishywashy” chauvinist who lacked vision.
The disdain for Harding was more than personal, for the White House and the
House of Morgan represented quite different factions of the Republican party. By
instinct and self-interest, the Morgan bank was liberal and internationalist on
global financial issues. It advocated U.S. leadership, close consultation with the
Allies, and vigorous lending abroad. On foreign policy issues it felt some kinship
with Wilsonian Democrats. With England handicapped in its resumption of
foreign lending, J. P. Morgan and Company wanted the United States to inherit
British leadership and initiate the rebuilding of Europe. The Harding brand of
Republicanism, by contrast, was provincial, protectionist, and wearily
contemptuous of European conflicts. These Republicans regarded foreign loans
as ways to manipulate foreigners or as wasted welfare payments better spent
inside America. Throughout Morgan history, the bank would be strongly drawn
to internationalist leaders, not necessarily Republican.
Early in the new administration, the House of Morgan feuded with Harding
over some $10 billion that the Allies owed to Washington from wartime loans.
(These were the loans extended after the United States entered the war, not those
sponsored by J. P. Morgan on Wall Street.) The pro-English House of Morgan
argued strenuously to cancel this debt. Jack Morgan said the Allies had sent
soldiers against Germany while America was still sending only dollars; decency
demanded that the war debt be regarded as a subsidy and not as a loan. For the
Harding administration, it was a question of whether Yankees would again be
snookered by corrupt, wily Europeans. Collecting war debts was also a way to
keep U.S. taxes low. When Lamont went to talk about getting the debt canceled,
he found Harding floating in a sea of papers. “Lamont, this job is too much for
me,” the president said. “Whatever shall I do with all that pile? Well, I suppose I
might as well try to learn something about these debts.”46
Lamont’s subsequent meetings weren’t any more encouraging. Charles Evans
Hughes, the secretary of state, had unsuccessfuly campaigned for U.S.
membership in the League of Nations and felt uncomfortable with the insular
debt policy. But he cited the lack of a popular mandate to cancel the debt—the
same refrain the House of Morgan would hear for a dozen years to come.
Lamont loftily suggested to Hughes that the United States take British Honduras
in a swap for a piece of the debt—this was thrown out casually! Lamont found
the other cabinet members overjoyed at the prospect of squeezing the debtor
nations.
The administration adopted a policy of barring Wall Street loans to any
foreign government that had not settled its war debts with the United States.
After a sobering encounter with Treasury Secretary Andrew Mellon, Lamont
reported in horror to Jack: “He is the watchdog of the Treasury and naturally
considers it his duty to see that the Treasury gets every penny out of its debtors .
. . he seems to think, too, that if we keep alive all these notes owing to us from
dinky little countries all over Europe the fact that we are holding the notes will
give us a sort of strangle hold politically.”47
This was an extraordinarily shortsighted attitude that would weigh on world
finance for a generation. The mountain of debt would retard world trade,
undermine political leadership, and poison relations among the Western nations.
Faced with Washington’s obstinacy, the House of Morgan and Ben Strong
reluctantly advised their British friends to settle the debt with Washington. After
meetings between Mellon and Stanley Baldwin, the chancellor of the Exchequer,
the British agreed to make payments stretching over sixty-two years. But they
didn’t accept the bullying cheerfully. When Prime Minister Bonar Law heard the
terms from Stanley Baldwin, he fairly howled with rage. The issue would fester
throughout the interwar period, placing Morgans in the cross fire between
Washington and Whitehall. At the same time, the failure to cancel Allied debt
meant that the House of Morgan had to take a tough line toward German
reparations. For if the Germans didn’t pay reparations to the Allies, how would
the Allies pay Washington? This created a destructive merry-go-round of debt
that would spin ever faster until the whole system would break down in the
1930s.
If Washington at first demanded control over foreign lending out of concern
for the Allied war debt, it soon grew accustomed to exercising its new power.
The arrangement took on an unexpected longevity; the procedure became so
entrenched that J. P. Morgan and Company would brief the incoming Coolidge
and Hoover administrations on how it worked. Later, in remarkable testimony to
government-banker ties in the Diplomatic Age, Tom Lamont would state
categorically that no sizable loan of the 1920s was made without Washington’s
tacit approval. The line between politics and finance blurred, then disappeared.
The cognoscenti who interpreted Morgan actions as a mirror of official policy
were seldom far off the mark.
If this arrangement later collapsed in recriminations, it started in a spirit of
mutual convenience. Hiding behind Wall Street banks, the government could
disclaim responsibility when countries were approved or rejected for loans. The
banks, in turn, saw it as a security treaty, committing the government to
protecting loans made under its aegis. It also provided the banks with
government intelligence about debtor states. As the United States became a
creditor nation, Wall Street confronted that ageless problem of how to enforce
payment from sovereign states. Washington seemed to be the answer.
With the Harding review process came a notion—never explicitly stated, but
always there—that a government safety net was in place, which would catch
investors who fell off the high wire. As Lamont said, the government’s stamp of
approval “led many American investors into big foreign issues under the
impression, whether so stated or not, that the Government had approved the
issue or it could not have been made.”48 The arrangement encouraged a lot of
wishful thinking and spared bankers unpleasant thoughts about what might
happen in the case of default. There was an unspoken invitation to dispense with
close examination of debtor nations. In the 1920s, Wall Street operated under an
assumption of government protection, a notion that would prove illusory. But
while it lasted, it created a mood of intoxication such as the Street had never
known before and helped to trigger a decade of dreams that ended in the 1929
crash.
CHAPTER TWELVE
ODYSSEY
NOTHING better symbolized the House of Morgan’s postwar supremacy or its
fusion with American policy in the Diplomatic Age than its new prominence in
the Far East. At first, the bank had entered Asia at the government’s behest,
reluctantly joining the China consortium. Then William Jennings Bryan had
condemned such foreign “meddling,” and the group was disbanded. But the
world war, by strengthening America and weakening Europe in the Pacific,
tempted Secretary of State Robert Lansing with new regions. In 1919, rebuffed
by his own Treasury Department, he resurrected the China group of private
bankers instead. Jack Morgan remarked, “But Mr. Lansing, Mr. Bryan asked us
to desist.” Lansing, shamefaced, conceded the striking policy reversal.1
For this second China consortium, Tom Lamont played the exasperating
chairman’s role that previously had fallen to Harry Davison. In December 1919,
Lamont visited the White House for his marching orders and found his idol,
Woodrow Wilson, confined to a wheelchair. In a moving farewell, the president
was rolled into the sunshine of a wide bay window. Calm and pensive, even
joking about his disability, he hoped Lamont could reconcile differences between
the two rival governments struggling to control China. Ever since the 1911
revolution, power had been divided between an official government in Peking
and a nationalist one in Canton, with warlords ruling over Manchuria. From a
banker’s standpoint, this divided China was no less risky than the Manchu
dynasty, for there still existed no ultimate guarantor of debt, no government
bedrock on which to base loans.
In 1920, Lamont went on a mission to the Far East to see whether the time
was ripe for Chinese loans. Coolly watchful, he moved through a China
convulsed by strikes and student riots prompted by aggressive Japanese moves
in Manchuria. The students were outraged by the Treaty of Versailles, which
seemed to ratify Japan’s seizure of German possessions in China during the war.
Lamont was caught up in the Sino-Japanese rivalry. With diplomatic tact and
evenhandedness, he included a side trip to Tokyo on his itinerary. During this
1920 trip, Lamont moved about with royal pomp and a touch of splendor,
borrowing a leaf from Pierpont’s book. Each morning in Peking, he received
local merchants, who brought to his hotel camel caravans laden with costly
wares—furs, rugs, silk, jade, and porcelain.
Lamont was pursued by more than just vendors. The Japanese set spies on his
trail—such shameless eavesdroppers that they booked rooms on both sides of his
hotel room. The insouciant Lamont kept a single item at his side—the code book
for deciphering Morgan cables. His secretary lacked such sang froid. Lamont
later wrote, “Although I thought it unnecessary precaution, my secretary always
took [the code book] to bed with him and insisted upon sleeping with a loaded
revolver under his pillow.”2 Afterward, reading a cable on a train, Lamont found
a Japanese spy craning to steal a peek over his shoulder. He put the man out of
his misery by offhandedly handing him the message.
News reports of Lamont’s visit stirred nationalist fears that foreign bankers
would try to impose a new financial protectorate over China. His arrival was
protested by student demonstrations, which he thought were instigated by the
Japanese. He liked to tell of how he had pacified a mob of students in Shanghai.
If perhaps slightly embellished, the story testifies to Lamont’s belief in reason
and refinement as all-purpose weapons:
One mid-afternoon in Shanghai I was told that a group of a couple of
hundred of the Chinese student body were waiting in front of my hotel in
order to show their disapproval of the Consortium by stoning me. I sent out
word suggesting that the leaders come in for a cup of tea, and talk it all
over. A dozen of them turned up at first in rather an ugly mood. But the tea
was soothing and as soon as I was able to explain the facts about the
Consortium, that it was designed to free China from the worst of her
financial difficulties and help put some of her state enterprises on their feet,
they readily understood and agreed to cooperate.3
Did Lamont believe tea-time chatter had changed the students’ minds? Probably
not. Yet the story suggests his constant advantage in confrontations. He always
sounded so friendly and reasonable that he disarmed his most vocal critics.
Nobody could bait him, shake his poise, or make him surrender that casual but
impenetrable self-control.
Lamont never warmed to the Chinese and often spoke of them disparagingly.
Contrary to his usual reticence in such matters, he retailed stories of Chinese
corruption and intolerance. In Shanghai, he wanted to see Dr. Sun Yat-sen, head
of the nationalist government in southern China. Because the Chinese leader
feared a terrorist attack if he went to Lamont’s hotel, Lamont visited him, under
a heavy police escort. He saw nothing venerable about Dr. Sun, who had once
attended school in Hawaii and had once been an omnivorous reader at the British
Museum Library. Repeating Wilson’s question of whether peace could be
achieved between the two Chinas, Lamont was shocked by the reply. “Peace
between the South and North?” Sun echoed. “Why, yes. Just you give me $25
million, Mr. Lamont, and I’ll equip a couple of army corps. Then we’ll have
peace in short order.”4 Lamont was equally disenchanted by his contacts with the
Peking government. Over tea, President Hsu suggested that if a government loan
fell through, he might be in the market for a $5-million loan for himself.
Reporting back to the American group, Lamont recommended that no Chinese
loans be made until north and south were unified, with a parliament that could
take responsibility for a loan. It was the same problem faced by the first bankers’
consortium—an unstable polity. China never met the group’s conditions. By
1922, Lamont was asking Secretary of State Hughes whether the China
consortium should be disbanded. An ersatz diplomat, Lamont wished to
persevere less for reasons of profit than for reasons of state. But the question was
moot: the China group had been stillborn. This didn’t upset the House of
Morgan, for Japan would be its most profitable customer in the Far East and
China only an annoying factor in that relationship. Before long, Morgan
involvement in Japan would be so deep as to deprive Tom Lamont of any
incentive to renew his Chinese initiatives.
contrast with his tumultuous journey through China, the Japanese leg of
his 1920 journey was far more congenial, the start of a lasting friendship. Japan
was already known as the England of Asia—the highest possible
recommendation for a Morgan partner—and with Japan and America ascendant
in the Pacific, the time had come for closer financial relations. Like the United
States, Japan had prospered during the war by selling ships and supplies to the
Allies. Its gold reserves had grown a hundredfold—a war chest likely to impress
any banker. And where the United States was already Japan’s best customer,
Japan was now the fourth best market for U.S. exports.
The political context, too, was auspicious: the Japan that Lamont encountered
contained liberal elements eager to cultivate Western bankers and open the
country to new influences. For the moment, enlightened aristocrats held the
upper hand over militarists, and the cultural mood favored tolerance, openness,
even a touch of bohemianism. The Japanese economy was dominated by
zaibatsu—combination trading houses and industrial conglomerates formed
around core banks—and they were fast expanding overseas. So as Britain
weakened its long-standing alliance with Japan, Washington moved to fill the
vacuum.
IN
Tom Lamont and his wife, Florence, were greeted by Japan’s elite: the
merchant emperors of the houses of Mitsui and Mitsubishi. Cultured and
patrician, these families possessed a natural appeal for someone as ceremonious
and attentive to style as Lamont. A friend later remarked that Tom “simply
outsmiled the Japanese.”5 Eager to meet Wall Street’s newest ambassador, the
Japanese business leaders entertained him as a visiting monarch. He marveled at
how they produced No dancers at a moment’s notice or “bevies of graceful,
dancing geisha girls.”6 Florence was taken on a private tour of the twenty-fiveacre central Tokyo estate of Baron and Baroness Iwasaki, a maze of lakes,
gardens, and secluded courtyards. The Iwasakis were probably Japan’s richest
family and the founders of the Mitsubishi conglomerate, which owned Japan’s
largest steamship line.
The power of the House of Morgan in the 1920s owed much to its intimacy
with the world’s major central bankers, its ability to provide private channels of
communication among them. Lamont conferred about the China consortium with
Junnosuke Inouye, governor of the Bank of Japan, a gravely erect man with
round, black-rimmed glasses and a solemn mien. The towering figure of his
generation in Japanese finance, Inouye had served as president of the Yokohama
Specie Bank, whose Wall Street office was fiscal agent for the Japanese
government. He would twice be governor of the Bank of Japan and three times
minister of finance. Like Ben Strong in America, Montagu Norman in England,
and, later, Hjalmar Schact in Germany, Inouye made his nation’s cental bank a
strong, independent voice in the country’s affairs. Like so many Lamont
meetings, this one was providential. For Wall Streeters eager to believe that
justice and decency would prevail over militarism in Japan, Inouye was heavensent. He was an apostle of sound currencies and balanced budgets and remained
a steadfast, courageous opponent of the militarists.
Lamont established another fateful friendship, with the head of the Mitsui
conglomerate, Baron Takuma Dan, a slight, fragile man, with a gentle manner
and distinguished gray hair and mustache. His nickname was the Morgan of
Japan. Fluent in English, with a mining degree from MIT, he was no less
international and cosmopolitan than Tom Lamont. As managing director of the
Mitsui conglomerate and chairman of the Mitsui bank, he controlled an empire
that extended into every branch of the Japanese economy. It controlled a third of
Japanese overseas trade—25 percent of the silk trade, 40 percent of coal exports
—and managed a shipping fleet the size of the French merchant marine.
The Mitsui group made the Morgans seem like yesterday’s upstarts. For nine
consecutive generations, its bank had faced the sacred mountain, Fujisan. The
House of Mitsui had become financial agents of the shogunate in the seventeenth
century and bankers to the imperial house by 1867. It provided a convenient
overseas network for the Japanese government, having more agencies abroad
than the government had embassies. At the Mitsui compound in central Tokyo—
a fortresslike structure with a huge gate and stone wall bristling with bamboo
spikes—Baron Dan entertained Lamont with the same magnificence he later
displayed to the Prince of Wales. He showed his guest Gobelin tapestries in his
grand salon. Then they strolled by lotus ponds and under pine trees festooned
with thousands of paper lanterns. The following year, to promote closer
American ties, Dan led a Japanese delegation to Wall Street and dined with the
Lamonts at their East Seventieth Street townhouse.
Lamont’s success on his 1920 trip bore fruit with amazing speed. On
September 1, 1923, an earthquake erupted in the Tokyo-Yokohama vicinity. It
was a hot, windy day, and fires fanned over both cities, causing unspeakable
damage. It was the century’s worst earthquake, and over a hundred thousand
people died. More than half of Tokyo and Yokohama was reduced to ashes. The
property damage alone wiped out 2 percent of Japan’s wealth.
When the news was learned at 23 Wall, Morgan publicity chief Martin Egan
paid a condolence call at the Wall Street office of the Yokohama Specie Bank.
Dwight Morrow became chairman of the Red Cross Japan Fund, and the Corner
was converted into the New York headquarters for relief work. Rumors
circulated that Japan planned to float its first bond issue in America since the
Russo-Japanese War. Lamont wrote to Inouye, who was now the finance
minister, and advised against such an issue. Lamont realized that candor more
than greed would pay off in this situation. In his cable he said, “People who are
contributing millions of dollars out of pocket for suffering and disaster are a little
chary at the same moment of buying bonds for the people whom they are trying
to assist.”7
By late 1923, the Japanese, with their exceptional resilience, had restored
Tokyo’s electric lights, gas service, and water supply. The Tokyo Stock
Exchange was back in service in under three months. The mass destruction had
one beneficial side effect: it forced Japan to scrap many old factories and
modernize its industrial plants. By declaring a bank holiday that saved many
financial institutions, Inouye attained heroic stature in Japan. And when the
House of Mitsui rebuilt its bank, the building’s white marble facade was
designed by Trowbridge and Livingston, the architects of 23 Wall Street. Some
saw the House of Mitsui paying tacit homage to the House of Morgan and
honoring their new ties.
Once the calamitous mood disappeared, Lamont set about to win the Japanese
government as an exclusive Morgan client. The Japanese had found Pierpont
rather rough and abrasive—he had offended them by demanding collateral on
loans—and preferred doing business with Jacob Schiff of Kuhn, Loeb. For aid
provided during the Russo-Japanese War, Schiff was decorated by the mikado
with the Order of the Sacred Treasure. On Wall Street in the 1920s, it was a
delicate affair to steal away valued business while adhering to the Gentleman
Banker’s Code. So with guile and subtlety, Lamont had to coach Inouye’s
emissary, Tatsumi, on Wall Street etiquette. Slyly, he put words in his mouth,
tutoring him in the preferred style for an amicable breach. Afterward, Lamont
explained how he primed his target:
However as to the handling of any loan we have told Tatsumi frankly that it
appeared to us there were only 2 courses for him to adopt. First to go to Kuhn,
Loeb & Co. and state to them that because of the relations existing during the
loan operation of the Russian War 20 years ago they desire them now to
undertake the projected operation; or second as a complete alternative to go to
them and say that because of the national crisis confronting their country;
because of the grave necessity they felt themselves under for securing
cooperation throughout the entire American investment public; because too of
the importance for careful cooperation between the New York and London
markets they had determined to invite us to make the lead in the projected
operation and expected their friends Kuhn, Loeb & Co. to tell them this course
was the wise one.8
Kuhn, Loeb was now too small to handle the projected $150-million
earthquake loan, which would be the largest long-term foreign loan ever placed
in the American market. The firm was also still suffering from the damage done
to its standing on account of its supposed German sympathies in the war. When
the issue appeared in February 1924, J. P. Morgan and Company brought in its
old allies, National City and First National, as syndicate managers. To soothe
ruffled feelings, they included Kuhn, Loeb. Whatever the private gloating at
Morgans, the firm outwardly respected propriety. There was a twin loan of £25
million in London, and Barings, Schroders, and Rothschilds now had to include
Morgan Grenfell in their Japanese financing.
The American loan had a concealed agenda. On two occasions, Lamont had
talked with Secretary of State Hughes, who said he would be gratified “to have
the Japanese people have clear evidence of the friendly feeling on the part of the
two great English speaking nations toward Japan and the Japanese.”9 Once
again, Wall Street financing was the visible face of a shift in government policy.
One problem inherent in employing bankers as de facto ambassadors was that
they might transfer their allegiance to foreign powers. After all, private bankers
were schooled in a tradition of absolute loyalty to their clients. A Tom Lamont
would feel no less responsible to Japanese bondholders than a Pierpont Morgan
would to railroad bondholders. So the House of Morgan believed it had a stake
in Japanese success and prosperity and felt obliged to perform political favors
for its important new client. Even as the Morgan bank sponsored the big
earthquake loan, partners were embroiled in a political controversy on behalf of
the Japanese. They protested the Japanese Exclusion Act, which was designed to
check Japanese immigration and had a racist tinge. And they complained to the
White House about American fleet maneuvers around Hawaii, which were
troubling the Japanese. Tokyo and 23 Wall now played a game of mutual
adulation. By 1927, the emperor of Japan would invest Jack Morgan with the
Order of the Sacred Treasure and Lamont with the Order of the Rising Sun; in
1931, Russell Leffingwell would receive the Second Class Order of the Sacred
Treasure. These were rare honors for American bankers.
The tendency to switch loyalties to foreign clients and acquire a strong interest
in their survival would have profound consequences for the House of Morgan.
For by the mid-1920s, Lamont had recruited three new clients—Japan, Germany,
and Italy—whose course would sharply clash with America’s. It was strictly by
chance that the bank became involved with three future enemies. But over time,
these business conquests would create an extraordinary situation in which the
true-blue banker of the Allies ended up in the precarious position of banker to
the future Axis powers.
the new vogue for foreign securities, the major area of attention was Latin
America. Bond peddlers from Wall Street banks badgered small investors into
buying bonds issued in places they could scarcely pronounce. Few knew the
checkered history of Latin American lending or that as early as 1825 nearly
every borrower in Latin America had defaulted on interest payments. In the
nineteenth century, South America was already known for wild borrowing
sprees, followed by waves of default. Now too many bankers again chased too
few good deals, and credit standards eroded accordingly. In describing the
1920s, Otto Kahn later said, “A dozen American bankers sat in a half a dozen
South and Central American States . . . one outbidding the other foolishly,
recklessly, to the detriment of the public.”10 The default of Latin debt in the
1930s would profoundly shake America’s faith in Wall Street.
Latin American loans had always been risky because of the region’s
dependence on fluctuating commodity prices. A dip in copper prices instantly
IN
hurt Chile, while lower tin prices could cripple Bolivia. When the price of sugar
collapsed in 1920-21, the Cuban economy plunged with it. Faced with many
business failures, National City Bank—which held 90 percent of Cuba’s deposits
and served as the country’s national bank—foreclosed on properties and ended
up owning a fifth of the island’s sugar mills. The Guaranty Trust was also
heavily invested in Cuban sugar and had to be rescued by a Morgan-led group of
bankers in May 1921. William C. Potter, a manager of the Guggenheims’
smelting trust, was brought in as a caretaker executive and loan liquidator for the
bank; George Whitney and other Morgan partners went on its board. Devastated
by the experience, Guaranty Trust would deteriorate into such a sleepy, stodgy,
risk-fearing institution that by 1959 it would be ripe for merger with the far
smaller J. P. Morgan and Company.
As the prestige bank of Wall Street, the House of Morgan didn’t need to
coerce Main Street investors into buying Latin American bonds. It preferred
European industrial states, Commonwealth countries (Canada and Australia),
and developed states on the periphery (Japan and South Africa) although it had
long shared business in Argentina with Barings. This was the privilege of
success: the bank could choose the soundest foreign borrowers, lending its
imprimatur only to those countries that probably didn’t need it. The only poor
country the bank dealt with was Mexico, which had gone from the model Latin
American debtor in Pierpont’s day to the bête noire of global bankers. During the
prolonged turmoil of the Mexican Revolution, it had repudiated over $500
million in government and railway debt, an unusual loss of principal on Morgansponsored foreign bonds. Adding to the bank’s indignation was the fact that the
defaulted debt included Pierpont’s sacred loan of 1899—the first foreign issue
ever floated in London by an American banking house.
Before examining the Mexican debt morass, it is important to note some
differences between Latin American debt then and now. During the interwar
years, the debt was package’d as bonds and sold to small investors; in our own
day, the debt would take the form of bank credits, meaning that the public is not
directly at risk. During the 1920s, banks negotiated with Latin American debtors,
not on their own account, but as “moral trustees” for small bondholders. Such
was the nature of Morgan involvement in Mexico, with Tom Lamont serving as
chairman of the International Committee of Bankers on Mexico—the splendidly
initialed ICBM. Formed in 1918 with the approval of the State Department and
the British Foreign Office, the ICBM negotiated for two hundred thousand small
bondholders. In the nineteenth century, Mexican debt talks had been handled by
Barings. But citing the Monroe Doctrine, the State Department demanded that
the United States have the controlling hand on the committee. With over $1
billion invested in Mexico, the United States behaved like a jealous landlord.
Mexico was a resource-rich country that always held out a seductive promise of
prosperity, which it never quite fulfilled. And it had a weak political system,
always making debt repayment problematic.
Lamont spent so much time wrestling with Mexican debt that a slightly
paternal tone crept into his comments, as if Mexico were the backward child of
the Morgan brood. Writing a birthday greeting to his son, Corliss, in 1923, he
grew mawkish: “Much of my life for 2 years past has been devoted to help poor
Mexico to her feet. . . . The accomplishment of that task is one of my daily
prayers.”11 Lamont claimed that Mexico was the first thing to occupy him each
morning, and he often talked about the widows and orphans who had waited
years without receiving interest on their bonds. The Mexican debt crisis
demanded saintly patience and something of a romantic’s penchant for lost
causes. Lamont was ideally suited for the task.
In working with Japan, Lamont had some room in which to maneuver. This
wasn’t the case with Mexico, where he had close State Department supervision.
When it came to Third World countries, Washington more openly exploited
American financial power. Secretary of State Hughes opposed diplomatic
recognition of Mexico, which had continually threatened powerful U.S. interests
there. In 1917, under leftist president Venustiano Carranza, Mexico had enacted
a radical constitution, which asserted Mexican ownership of subsoil minerals—a
measure denounced as nationalization by American oilmen, who wanted to send
in gunboats to repeal it. After Pancho Villa’s troops looted his huge cattle ranch
in Mexico, William Randolph Hearst began to editorialize in favor of a Mexican
invasion in 1916. Hughes was also bothered by Mexico’s default on foreign debt
and its confiscation of American-owned lands. Until these demands were met,
Hughes demanded a credit quarantine around Mexico. The House of Morgan
was his main instrument for enforcing it.
Like the China consortium meetings, the ICBM meetings were held at 23 Wall
Street. It was the same act of ventriloquism: the State Department talked, and
Tom Lamont moved his lips. The Mexicans preferred this charade, for it enabled
them to bargain with Washington while being spared the public stigma of
negotiating with a gringo government. Private banks such as Morgans were
perfect channels for frank exchanges between Washington and foreign
governments.
But while Lamont was rapturously fascinated by Japan, he knew virtually
nothing of Mexico, which was thought too wild for tourism. Hence, Lamont
acted as proxy for two hundred thousand bondholders whom he never saw,
negotiating with a country he never visited. He became a familiar figure in the
Mexican press, the personification of American finance. Interviewing him in
1921, a Mexico City correspondent wrote: “He is not the man behind the throne,
he is the man on the throne. He is the most clever, the most listened to, the most
powerful of the partners of Morgan.”12
In 1920, after counterrevolutionaries murdered Carranza, General Álvaro
Obregón rose to power. To win recognition from Washington, he embarked on a
conciliatory strategy, courting American businessmen, hiring a Washington
lobbyist, and distributing favorable literature in the United States. In 1921, when
William Randolph Hearst went to tour his vast Mexican properties—which his
father had gotten cheaply from the former dictator, Porflrio Díaz—he found
Obregón a pleasant surprise. Afterward, he said his properties had been “in
continual trouble and turmoil during the several preceding administrations, but
have been in complete peace and security during the administration of President
Obregón.”13
Eager to please American bankers and reestablish Mexican credit, Obregón
plied Lamont with invitations to visit Mexico. But Secretary of State Hughes
wanted a treaty of friendship and commerce from Obregón and insisted that
Lamont stall to increase the pressure. When the bank received alarming reports
of rebel troop movements against the president, Lamont told Hughes that if he
went to Mexico, it might bolster Obregón’s standing. Hughes relented. In
October 1921, Lamont boarded the bank’s private railroad car, Peacock Point,
and headed south.
Obregón, a chick-pea farmer from Sonora, was a crafty politician who knew
how to temper reforms with authoritarian toughness. To gain peasant support, he
would praise revolutionary ideals while scaling back Carranza’s reforms.
Lamont found the one-armed general a charming host, friendly, expansive, and
not without humor. With Prohibition in the United States, Obregón greeted
Lamont and gave a brisk summons for some liquor. “At last, Mr. Lamont, you
see you are in a free country,” he said. One detail of the visit riveted Lamont’s
attention. Obregón had placed his desk in the middle of a hardwood floor, so he
would be able to hear the squeak of an assassin’s footsteps.
During his talks with the Mexican president, Lamont confronted the dilemma
that accompanies every global debt crisis: the victim threatens to default unless
he receives more money. What leverage do bankers ultimately have over a
defaulting country if not the prospect of new loans? As Lamont later reported to
Secretary of State Hughes, Obregón “could not see the advantage of the
government’s attempting to live up to its obligations, even in greatly diminished
measure, unless, at the same time, it were assured fresh loans upon a large
scale.”15 Lamont was saved from this course by a structural obstacle: the debt
was in the form of bonded debt, and capital markets wouldn’t swallow more
Mexican bonds; so the lending had built-in limits. Lamont told Obregón that no
new loans would be granted until the old ones were at least partly honored. The
Mexican replied that their debt should be proportionate to their ability to pay—
an argument that will sound drearily familiar to bankers of a later day—and
wanted a 50-percent reduction in principal.
Lamont began to sense that Obregón had a secret agenda. By holding back
customs revenues pledged to the defaulted bonds, Mexico drove down the
bonds’ market price. This was convenient, since the government could then use
those revenues to buy back depreciated bonds in the marketplace. Lamont
thought this a betrayal of bondholders’ trust. At this point, he still insisted that
the bonds be redeemed at par. He tried to scare Mexico with arguments that
default would make it a pariah in the international marketplace, that it would be
unable to secure future loans.
When Lamont left Mexico two days ahead of schedule, he had armed guards
posted on the rear platform of his train. It turned out he narrowly escaped harm:
when he reached San Antonio, Texas, he learned that his originally scheduled
train was attacked by bandits, who planned to kidnap him and demand a half
million gold pesos in ransom.16 Back at 23 Wall Street, Lamont received a wire
from Jack Morgan expressing disgust with Mexico. Jack thought it a point of
family honor to make sure Mexico repaid his father’s 1899 loan: “I did not think
any Government of modern times would so frankly proclaim its complete
dishonesty or its abandonment of all decent finance or morals. Hope you did not
have too trying a time, and congratulate you in getting out before they stole your
pocketbook or watch.”17 Again Jack personalized bank policy abroad, while
Lamont assumed a diplomat’s disinterested professionalism and was thus better
attuned to the Diplomatic Age.
There is a tendency to portray Wall Street bankers of the period as reactionary
ogres. In Latin America, they certainly had a bias toward strong, authoritarian
regimes. But the weakness wasn’t for totalitarian or laissez-faire regimes so
much as for stability, whatever its form. Bankers probably had a higher ethical
standard than industrialists of the period, as became evident from the contrasting
attitudes taken by the House of Morgan and the oil companies in dealing with
Mexico.
Throughout the twenties, American oilmen tried to persuade bankers to
protest the hated 1917 Mexican constitution. They also bristled at higher
Mexican export taxes and a government requirement that they obtain
concessions on land they thought they owned. Both J. P. Morgan and Company
and Morgan Grenfell had performed underwriting for Standard Oil of New
Jersey, and Lamont was badgered by Standard, the Texas Company, and Sinclair
Oil to join their campaign against Mexico. By 1921, Mexico was already the
world’s biggest oil exporter and a high-priority area for American oilmen.
Lamont didn’t want to jeopardize his debt negotiations by entering the murky,
often violent strife between the oilmen and Mexico. He performed some
perfunctory lobbying for them but generally kept his distance. The oilmen
weren’t squeamish about their tactics and didn’t hesitate to trample governments
that defied them. After Lamont returned from Mexico in 1921, Walter Teagle,
head of Standard Oil, passed along a memo to him from an unnamed Mexican.
In a covering note, Teagle said blithely that it “might be of interest to you in a
general way.”18
Preserved in Lamont’s files, the memo is shocking, nothing less than a
blueprint for bribing the entire Mexican government. It starts out with a nasty
portrayal of the Mexican national character: “The Mexican, and particularly the
traditional professional politician of Mexico, after four hundred years of training,
is actuated by two dominant motives; one, the fear of force—physical force; the
other is the incentive of personal gain. . . . An appeal to patriotism or to idealism
is not understood.”
The nameless author goes on to say that the use of force would be too costly,
leaving only pecuniary gain as a motivating force in Mexico. He contended that
Obregón was an unwilling captive to party radicals and could not satisfy the
needs of his greedily ambitious lieutenants. How to free him from their
influence? “This force can only be removed from and returned to the President
himself by putting him in such a financial position as to give him dominance.
Money will change his cabinet, make over his congress, give him domination
over his governors and allow him to abrogate or modify present unsatisfactory
laws.”
To provide Obregón with the necessary funds-—and this is where the House
of Morgan came in—the writer of the memo suggested setting up a Mexican
bank that would masquerade as a bank for agricultural development, but would
exist to place money at Obregón’s personal disposal. The writer concluded that
the money, liberally distributed, would achieve miraculous results: “The
undesirable elements in his cabinet would be given a certain sum of money and
sent to desirable foreign posts. The obstructive radical elements in his congress
could be removed. It would soon be seen that the radical diputado would become
a staid conservative the moment he came into possession of property. . . . Such a
bank might well dominate the financial and economic life of Mexico and the
American directors of such an institution might well keep in close touch with
Washington.”19
Lamont’s file shows no reply or follow-up. Perhaps he responded orally. In all
likelihood, he was shocked. He may have regarded silence as the most eloquent
expression of scorn, or at least the best way to avoid antagonizing an important
client. Lamont was no choirboy in politics, but the House of Morgan shied away
from blatant skulduggery. The bank had a strict policy against paying so-called
fees or commissions and usually reacted to such requests with frigid New
England reserve. The Standard Oil memo provides a benchmark for judging the
Morgan bank against the dismal standard of American business conduct in Latin
America during the 1920s.
The ensuing Mexican debt talks of the early 1920s can be quickly
summarized. There were a few fleeting triumphs, always followed by fresh
defaults and despair. Lamont’s ingenuity could never win more than a short
reprieve. In 1922, he negotiated an agreement with the Mexican finance minister,
de la Huerta, that won Obregón the U.S. recognition he had craved. The
agreement called for steep concessions by Lamont, including lower interest
payments spread over forty-five years. The deal was suspended by early 1924.
Among other factors, Mexico was suffering from declining oil production as oil
companies vengefully switched to the politically more pliant Venezuela. Another
debt agreement was reached in 1925—the initial payment this time was down to
a paltry $10.7 million—but it, too, was soon dead. The bankers who had once
boldly insisted on full payment had to settle for ever-smaller fractions of the
original loans. When final disposition was made of this Mexican debt later in the
decade, Lamont would find himself negotiating not with the Mexicans, but with
an unexpectedly resourceful adversary: his own former partner, Dwight W.
Morrow, recently appointed ambassador to Mexico.
Republican evasion of world responsibility presented new opportunities
for the House of Morgan. Glorifying entrepreneurs and scorning politicians, the
Harding, Coolidge, and Hoover administrations drafted financiers to represent
them at economic conferences. This move reflected a 1920s cult in which
businessmen were revered as far-sighted problem solvers who could succeed
where politicians failed. The new mood suited Morgan partners Tom Lamont,
Dwight Morrow, and Russell Leffingwell, who fancied themselves financial
diplomats and sometimes joked about their technical ineptitude in more prosaic
forms of banking. During the 1920s, Morgan partners spent enormous time at
overseas conferences, serving as a legitimate cover for Republican
THE
administrations more global-minded than they cared to admit; thus the bank
profited from the isolationism it deplored. This was the same use of private
proxies that Washington had employed since the days of the first China
consortium.
If private bankers enjoyed new stature, they shared it with central bankers,
who assumed new power and autonomy. Beneath the euphoria, the Jazz Age was
a despairing time. The populace grew disenchanted with politicians who had led
them into war and then squabbled over reparations and postwar security. A
clique of western central bankers hoped to transcend this political opportunism
and forge a banking elite dedicated to sound economic principles. They espoused
free trade and an unrestricted flow of capital, balanced budgets and strong
currencies. They saw it as their function to maintain financial standards and prod
politicians into painful, necessary reforms.
The American representative of this trend was Benjamin Strong of the New
York Federal Reserve Bank. When the Harding and Coolidge administrations
disclaimed leadership in postwar European reconstruction, the role devolved
upon Strong, who was the Fed’s contact with the central banks of Europe. Strong
was solidly in the Morgan mold—a descendant of seventeenth-century Puritans,
counting theologians and bank presidents among his ancestors, and the son of a
New York Central superintendent. Like his Morgan friends, Strong matched
conservative domestic views with a cosmopolitan receptivity to European
thought—so much so that Hoover later chided him as a “mental annex of
Europe.” Hobbled by a regulation that he couldn’t lend directly to foreign
governments, Strong needed a private bank as his funding vehicle. He turned to
the House of Morgan, which benefited incalculably from his patronage. In fact,
the Morgan-Strong friendship would mock any notion of the new Federal
Reserve System as a curb on private banking power. In the 1920s, real power in
the system resided at the New York Fed’s new Florentine palazzo on Liberty
Street.
Strong was capable of great warmth and sudden anger. Unlike the smooth
Morgan partners, he was a moody and troubled man. He was divorced by his
second wife and in 1916 contracted tuberculosis, which would keep him from
the bank for several months each year. Perhaps in reaction to his personal
disappointments, he became passionately devoted to the Fed. He tried to endow
it with the Bank of England’s austere, unassailable dignity. A giant presence in
American finance, Strong tutored the still green Federal Reserve governors in
the art of central banking.
Ben Strong participated in postwar European reconstruction and currency
stabilization with his British counterpart, Montagu Norman, governor of the
Bank of England after 1920. In Monty, he found a dear friend and alter ego. The
divorced Strong and the bachelor Norman plunged into a relationship of such
secret intimacy and convoluted intrigue as to arouse fears in both their
governments. Taking long vacations together in Bar Harbor, Maine, and southern
France, they fortified each other’s distrust of politicians. They shared faith in the
gold standard and hoped to create autonomous central banks that could conduct
global monetary policy free of political tampering. To their two-man cabal,
Strong brought the unmatched financial power of Wall Street, while Norman lent
British knowledge and professionalism ripened over many generations. The
postwar pound was simply too weak for Norman to conduct unilateral financial
diplomacy. After the Treasury embargoed foreign loans to shore up the pound,
diverting foreign borrowers to New York, Norman desperately needed a Wall
Street link to offset the City’s weakness. He found it in Ben Strong and the
House of Morgan.
For twenty-four years, Monty Norman reigned mysteriously in his mahogany
office at the Bank of England. He had been perfectly bred for the job. One of his
grandfathers was a long-time bank director, and the other was a governor of the
bank. He himself came to the bank via the Anglo-American merchant bank of
Brown Shipley and Company (Brown Brothers in New York). Many labels have
been applied to Norman—madman, genius, hypochondriac, megalomaniac,
conspirator, eccentric, visionary—all of which were true. One banker said he
resembled “a painting by Van Dyck—tall, pointed goatee, great hat, like a
courtier of the Stuarts.”20 He had a wizard’s face—sharp and chiseled, with
pointed nose and beard. Despite—or perhaps to counter—rumors of Sephardic
Jewish blood, he was viciously anti-Semitic. As he moved about in funereal
black beneath a wide-brimmed hat, he retained a touch of Oriental splendor in
the emerald that adorned his tie. Sensitive and high-strung, he often suffered
breakdowns or lumbago attacks during currency crises. A suppressed hysteric, he
would erupt in tantrums that terrified bank employees and made his rule
absolute. His thin smile rarely opened into laughter, as if that might shatter his
mystique. A proud prima donna, he would say he felt “faint” for “want of food”
if he didn’t eat every two hours.
One of Norman’s biographers describes him as giving “the appearance . . . of
being engaged in a perpetual conspiracy.”21 This conformed to his sense of
central banking, which he approached as a priestly mystery, a rite best conducted
in deep shadows. “The Bank of England is my sole mistress,” he said; “I think
only of her, and I’ve dedicated my life to her.”22 For Norman, the central banker
was answerable only to higher principles, not to any elected representatives.
When challenged, he often cited a favorite Arab proverb: “The dogs may bark,
but the caravan moves on.”23 He received visitors alone, as if his office were a
confessional, and he was privy to the inner thoughts of powerful men. Years
later, Franklin Roosevelt unnerved him and stripped him of his wizard’s magic
by insisting that others be present at their White House meeting. It was Norman
who incarnated Washington fears that British financiers were a sophisticated and
treacherous lot who gulled innocent Americans.
Monty Norman was a natural denizen of the secretive Morgan world. Among
old friends, he counted his former classmate Teddy Grenfell and Vivian Hugh
Smith of Morgan Grenfell. Brooding and melancholy, he liked Grenfell’s
prankish wit, while he was dedicated to Smith for having helped him to
overcome doubts about becoming a director of the Bank of England in 1907.
Bucking him up, Smith had written, “Of course you will accept and, when you
are on the Court, remember that you are as good as they are.”24 As a solitary
bachelor, Norman created a mysterious circle of married female confidantes,
including Smith’s wife, Lady Sibyl, the beautiful society suffragette. A follower
of theosophy and faith healing, she appealed to Norman’s kooky side. “Through
her influence,” says a Norman biographer, “he widened his interest in the
esoteric and the occult; for Sybil was emphatic about the crucial importance of
religion to a spirit as easily bruised as his.”25 Lady Sybil would disappear for
long, platonic weekends with Monty, who became a godfather to the Smith
children. Thus, by happenstance, Morgan Grenfell was extremely close to the
most influential central banker of the interwar years.
The House of Morgan formed an indispensable part of Norman’s strategy for
reordering European economies. America had the means to accomplish the task
but was still ambivalent about exercising power in Europe. Even among Morgan
partners, there was a reservoir of doubt. Russell Leffingwell, a former Treasury
official who became a Morgan partner in 1923, told Basil Blackett of the British
Treasury, “We feel that we got you out of a pretty pickle [during the war] but we
rather think that it is time you were looking out for yourselves. We have never
had any taste for world finance and our brief experience has not developed it. We
like you and want to see you prosperous and happy and peaceful but we don’t
like the game you play nor the way you play it and don’t want to be forced to sit
in it.”26 Norman loved the game. Imperial to the core, he wanted to preserve
London as a financial center and the bank as arbiter of the world monetary
system. Aided by the House of Morgan, he would manage to exercise a power in
the 1920s that far outstripped the meager capital at his disposal.
Norman thought in large, geopolitical terms. He saw the rehabilitation of
central Europe as a precondition for restoring prosperity and political order and
exempted reconstruction loans from the foreign loan embargo. Through his
leadership, Morgans first became involved in Austria. In late 1921, the British
sounded out Jack about an Austrian loan, saying its government would furnish
Gobelin tapestries as collateral. The next year, Austria’s finance minister, Dr.
Kienbock, pleaded with Dean Jay of Morgan, Harjes in Paris (now in plush
headquarters on the place Vendôme) for a loan. Kienbock cited famine, misery,
and a worthless Austrian schilling. He again asked for a loan backed by
tapestries and other objets d’art.27 At first, the House of Morgan frowned on this
unorthodox request, afraid it would create a “pawn-broking impression”28—even
beggars had to come suitably attired to Morgans. Lamont—now known as the
Morgan empire’s secretary of state—wondered whether another bank should
undertake the loan. He feared that as former banker to the Allies and fiscal agent
for England and France, J. P. Morgan and Company was a poor choice and might
even engender hostility in Austria.
The Austrian loan was worked out under the auspices of the League of
Nations, which aided Monty Norman’s grand design of reconstruction.
Impressively wrapped, it was payable in gold coin and backed by Austria’s
customs and tobacco monopoly. It was issued simultaneously in several capitals.
The $25-million New York portion was co-managed by J. P. Morgan and
Company and Kuhn, Loeb. In retrospect, the League of Nations cachet perhaps
gave a specious air of security to a risky venture.
Austria led to Germany. By early 1922, Germany was already pleading for
relief from onerous reparations payments. The British sympathized, but France
kept up its grudge, citing extensive war damage on its soil. (The extraordinary
Anne Morgan was gathering hundreds of American women to rebuild French
villages and raise money for schools, hospitals, and libraries. As a fund-raiser,
her American Friends for Devastated France co-sponsored the July 1921
championship fight between Jack Dempsey and Georges Carpentier.) In the most
potent form of default imaginable, the Germans expanded their money supply,
ran large budget deficits, and depreciated the mark. This had the fatal side effect
of unleashing hyperinflation. The Allies felt betrayed as German monetary
policy undermined reparations payments. In January 1923, French and Belgian
troops occupied the Ruhr. Irate troops ripped German bank notes from the hands
of manufacturers and seized the customs machinery.
Monty Norman warned Ben Strong that occupied German soil was the “black
spot” of the world and could ignite another war. Germany remained England’s
main trading partner, and Norman saw its revival as the crux of his master
scheme for European prosperity. He was also personally attached to Germany,
where he had studied music. Washington similarly placed a high priority on
German revival. America had ended the war with vastly expanded factory
capacity and needed export markets to absorb its surplus. American corporations
were also eager to acquire advanced German technology.
The result was a massive Anglo-American commitment to keeping Germany
afloat, with the House of Morgan assigned a central role. As Lamont later wrote,
“The British and ourselves regarded Germany as the economic hub of the
European universe. We feared that unless Germany were rebuilt and prospered
all the surrounding countries of the Continent would likewise languish.”29
Bankers of an earlier generation would probably never have fretted in this way
about the fate of the Western world or thought in such explicitly political terms.
The new demands of the Diplomatic Age were graphically seen in Jack
Morgan’s volte-face on Germany. In 1922, Secretary of State Hughes and
Commerce Secretary Herbert Hoover asked Jack to participate—allegedly as a
“private citizen”—in a global bankers’ committee in Paris, which was
considering an international loan to Germany. Jack, implacable toward Germany,
had sworn after the war that the United States should never trade with that
country. He and Blumenthal were then winding up their spying forays against
German-Jewish bankers on Wall Street. So Jack’s acceptance of Hughes’s
suggestion must have been disorienting, especially given the outpouring of
publicity he received in Paris. The New York Herald reported, “Paris dispatches
tell us that J.P. Morgan’s presence at the international bankers’ conference is
attracting more attention than has been devoted to any American since President
Wilson arrived in the French capital for the Versailles conference. . . . He is a
symbol of the tremendous American power that may be used for the
rehabilitation of Europe.”30 Jack handled himself ably and raised valid
reservations about a German loan but was obliged to suppress his more extreme
private opinions of Germany.
From now on, Jack would be the sober financial statesman in public, the
confirmed foe of Germany in private. After the Ruhr occupation, he fired off a
letter to Hughes condemning it. In eloquent terms, he told Clarence Barron that
the Allies shouldn’t strip Germany of hope by confiscating all its earnings
through reparations. Yet his personal correspondence reveals the old
demonology of the Hun. To Grenfell, he wrote, “I must say that it begins to look
to me as though France is really talking to Germany in the only language that the
Germans understand.” Of Germany’s state of mind, he added, “it calls for the
whip and not for conversations.”31
Meanwhile, German inflation worsened. The government was printing so
much money that newspaper presses were commandeered. Thirty paper mills
worked around the clock to satisfy the need for bank notes. Prices soared so fast
that wives would meet their husbands at factory gates, collect their wages, and
then rush off to shop before the next round of price increases. In January 1922,
about two hundred marks equaled one dollar. By November 1923, it took over
four billion marks to buy a dollar. A stamp on a letter to America cost a billion
marks. At the end, in a final absurdity, prices doubled hourly.
To restore Germany, a new conference was summoned in early 1924. Again
the House of Morgan represented the Coolidge administration, which kept up a
bogus air of indifference. In fact, Charles Evans Hughes was very disturbed by
reports of starving children and mounting extremism in Germany. As the
“private” American representatives to the conference, Hughes chose two people
close to J. P. Morgan and Company—Owen Young, chairman of General
Electric, and General Charles Gates Dawes, the lone Chicago banker to join the
Anglo-French loan of 1915. The German problem was so fraught with risk that
upon departing for Europe, Dawes joked, “Oh, well, somebody has to take the
garbage or the garlands.”32 The fiction was maintained that these businessmen
were just plain private citizens.
This conference generated the Dawes Plan to settle Germany’s problems. It
was full of financial ingenuity and political hazard. It scaled back reparations
and tied them to Germany’s capacity to pay. It also stipulated that the Allies
would select an agent general to preside over Germany’s economy and
reparations transfers. This effectively placed Germany in international
receivership. (And many reparation payments were funneled through the Morgan
bank.) Germany was mortgaged to the Allies, with its railways and central bank
subjected to foreign control, a situation that would provide a propaganda
bonanza for the Nazis.
Aside from a stipulation ensuring that it would get back the Ruhr, what
reconciled Germany to the Dawes Plan was the prospect of a giant loan floated
in New York and Europe. Reparations would largely be paid with borrowed
money. With Germany now a financial outcast, bankers everywhere were
dubious about the loan’s chances. Montagu Norman mused, “It can only be
accomplished, if at all, through the Bank of England and in New York through
J.P.M. &. Co.”33 Once again, the State Department was a guiding, if unseen,
presence. Hughes told the House of Morgan that it would be a “disaster” and
“most unfortunate” if the Dawes Plan miscarried for lack of American
participation. Such official wishes were never lightly ignored.
To help along the prospective German loan, Monty Norman arranged a mid1924 meeting at the Bank of England between Jack Morgan, Tom Lamont, and
the new Reichsbank president, Dr. Hjalmar Horace Greeley Schacht (whose
father had once worked in a New York brewery and been an admirer of publisher
Horace Greeley). To stop the ruinous inflation, Dr. Schacht abolished the old
mark and issued a new renten-mark, making him an instant hero in the banking
world and winning him the Reichsbank post. On New Year’s Eve of 1924, he
arrived in London for Bank of England talks. As he disembarked from the train
at Liverpool Street Station, he later recalled, “I was not a little surprised to see . .
. a tall man with a pointed grayish beard and shrewd, discerning eyes, who
introduced himself as Montagu Norman, governor of the Bank of England.”34
This began another of Norman’s close, mysterious friendships.
In our narrative, we shall see Schacht playing many different roles-—evil
genius of Nazi finance, daring plotter against Hitler, boisterously self-righteous
defendant at Nuremberg—but we first encounter him at a moment of glory.
Under Schacht, the Reichsbank was freed from government control, extending
Norman’s dream of banker autonomy in Europe. A brilliant, narcissistic windbag
prone to extravagant metaphors and bombast, Schacht assured Morgan and
Lamont that the Dawes loan would be repaid. He obsequiously remarked that the
American offering “would fail completely if it lacked the prestige and moral
endorsement of the Morgan bank.”35 For J. P. Morgan and Company, it was
critical that the loan take priority over other claims on Germany. The bank had
no outstanding German loans and was only being drawn in under political
pressure by Britain and France—a fact that would be loudly repeated when the
loan defaulted in the 1930s. Then, in a very different political environment,
Lamont would bitterly remind Schacht of his unctuous pledges.
To give the loan international seasoning, half the issue appeared in New York
and the other half in London and other European capitals. The $110-million New
York portion was enthusiastically received and oversubscribed. By seeming to
settle the German question, the loan lifted a weight from financial markets. It
electrified Wall Street and spurred foreign lending to Latin America and
elsewhere. For Weimar Germany, it was a turning point. It became the decade’s
largest sovereign borrower. American capital and companies poured in: Ford,
General Motors, E. I. Du Pont, General Electric, Standard Oil of New Jersey, and
Dow Chemical. Unemployment plunged and Germany’s economic slide was
reversed into a five-year upturn. This revival would provide Adolf Hitler with a
splendid industrial machine and the money to finance massive rearmament. In
the meantime, the world was trapped in a circular charade in which American
money paid to Germany was handed over as reparations payments to the Allies,
who sent it back to the United States as war debt.
Most remarkable in Morgan archives is the partners’ skepticism of the Dawes
Plan. Russell Leffingwell, now the resident economist, saw the scheme as
riddled with dangerous contradictions. Why would investors have faith in a
politically neutered Germany? And why did the Allies wish to resurrect their
former foe? Prescient, he feared a political backlash, a day of reckoning: “My
political doubt about Germany is how long her people will consent to be sweated
for the benefit of her former enemies.”36 Montagu Norman and Philip Snowden,
chancellor of the Exchequer, also feared Germany had submitted under duress
and would later resent its position.
In August 1923, President Warren G. Harding had died of an embolism. His
successor, Calvin Coolidge, wasn’t any more enlightened about the problem of
world debt. He was adamant that the Allies should pay their war debts—“They
hired the money, didn’t they?” he asked—and kept up the fiction that those debts
had nothing to do with reparations.37 But so long as the United States demanded
war-debt payments, the Allies couldn’t be flexible on German reparations.
A final aspect of the reparations problem was Morgan involvement in the
contest for Germany’s new economic czar, the agent general. Amid much
hoopla, the press labeled the job the world’s most important, since the occupant
would supervise the German economy. He would have to extract the last penny
from Germany while staving off renewed inflation. Hoping the United States
would exert a moderating influence, Germany wanted an American for the post.
On Wall Street, a powerful consensus formed behind Morgan partner Dwight
Morrow.
An old friend of President Coolidge, Morrow had already been widely touted
for numerous government posts. Short, bespectacled, and bookish, he was
Morgan’s philosopher-king, a man marked for an elusive greatness. Now his
moment arrived. He had formidable supporters—Jack Morgan, Charles Dawes,
and Owen Young in the private sector; Hughes and Hoover in the cabinet. After
a long White House meeting in July 1924, he seemed like a shoo-in. Among
other things, the White House thought Morrow’s appointment would guarantee
the success of the Dawes loan.
The next evening, however, at another White House meeting, the U.S.
ambassador to Germany, Alanson Houghton, argued against Morrow’s
appointment. He said the choice of a Morgan partner would be incendiary in
German politics, even fatal to the Dawes Plan. The long, heated meeting ran till
midnight. It was difficult for Coolidge to reverse the appointment of a close
friend, but the Morrow nomination was nonetheless spiked. As Dawes afterward
explained, “Houghton, with great earnestness, pointed out that the appointment
of a member of the firm of Morgan &. Co. would probably enable the
Nationalists in Germany to defeat the Republican Government there by raising
the demagogic cry that it was a scheme of the international bankers to crush the
life out of Germany instead of helping her. He gave this as the private opinion of
the German Government itself.”38
Other analysts saw less strategic cunning than cowardice behind Coolidge’s
desertion of his old friend. Because of its wartime role, the House of Morgan
was still anathema in German-American communities of the Midwest.
Coolidge’s aides apparently warned him to avoid any Morrow link. This episode
shows that the Morgan bank carried serious political liabilities even in a decade
dominated by conservative Republican administrations.
Bitterly disappointed, Lamont and Norman demanded a Morrow clone. The
dark horse who emerged victorious was a future Morgan partner, thirty-twoyear-old S. Parker Gilbert. Tall and boyish, dubbed the Thinking Machine, he
was a protege of Russell Leffingwell, whom he had replaced as assistant
secretary of the Treasury in 1920, becoming the wunderkind of the department.
At twenty-eight, he was elevated to under secretary, and in the absence of
Treasury Secretary Andrew Mellon, he ran the department—the youngest person
ever to do so. Paul Warburg described him as a “practical young man with the
eyes of a dreamer and the sensitive mouth of a scholar.”39 The Germans would
see him far less poetically. Heinrich Kohler, the finance minister, described him
thus: “Reserved and taciturn, the tall lanky man with the impenetrable features
appeared considerably older than he really was and . . . made an eerie
impression.”40
During his five years in Berlin, Gilbert oversaw the transfer of $2 billion in
German reparations. As Germany’s economic czar, he was burned in effigy at
mock coronations and vilified as a new kaiser. He apparently never learned to
speak German and worked compulsively, never attending cultural events or
entering into German society. Despite his youth, he was a stern taskmaster,
constantly accusing the Germans of fiscal extravagance. He thought they could
pay reparations by following sound fiscal policy. Another finance minister, Paul
Moldenhauer, noted, “He spoke with a mixture of awkwardness and arrogance,
mumbling the words so that one could hardly understand his English.”41 But
Gilbert’s reports on Germany’s financial conditions would be models of lucidity
and precision, winning him a tremendous reputation in Anglo-American
financial circles; he would be a figure of worldwide influence in the twenties.
Dwight Morrow didn’t long regret his loss and felt that he had been spared a
burden. He was soon writing to Hughes and confessing to doubts about the
Dawes Plan. Even as the world celebrated the great triumph, there was an
undercurrent of deep unease at the House of Morgan. Morrow declared: “It is the
foreign control to which Germany is to be subjected that has made us somewhat
fearful about the permanent success of the Dawes Plan. . . . It is almost
inevitable that this loan will be unpopular in Germany after a few years. The
people of Germany, in our opinion, are almost certain, after sufficient time has
elapsed, to think not of the release of the Ruhr but of the extent to which what
was once a first-class Power has been subjected to foreign control. ”42 The fear
was prophetic, for it became a cardinal tenet of Nazi propaganda that Germany
had been stampeded into the Dawes plan by international bankers. And the
House of Morgan would reap the fruits of these mistaken policies of the
twenties.
CHAPTER THIRTEEN
JAZZ
BY 1924, the House of Morgan was so influential in American politics that
conspiracy buffs couldn’t tell which presidential candidate was more beholden to
the bank. As far as the partners’ support of a candidate was concerned, most
backed Calvin Coolidge—out of ideological comfort and respect for his
friendship with Dwight Morrow. Coolidge’s running mate was Charles Dawes,
who had profited from the sudden renown of his plan for Germany’s reparations
payments. Others might dismiss Coolidge as dour and complacent, but Jack
Morgan perceived in him an extraordinary blend of deep thinker and moralist:
“In a somewhat long life, I have never seen any President who gives me just the
feeling of confidence in the Country and its institutions, and the working out of
its problems, that Mr. Coolidge does.”1 He disagreed that Coolidge was a tool of
business—sure proof to some that he was. Between the White House and the
House of Morgan there existed clear amity, moving The New Republic’s TRB to
say, “I would rather not have these Morgans boys quite so much at home around
the White House.”2
The bank’s peerless renown in the Roaring Twenties was such that the
Democratic candidate was the chief Morgan lawyer, John W. Davis. Davis was a
backgammon and cribbage partner of Jack Morgan’s—they played for a nickel a
game—and they both belonged to the Zodiac Club, a secret society in which
each member took a different astrological sign. A former solicitor general and
ambassador to the Court of Saint James’s, Davis was recruited by Allan
Wardwell in 1920 to join the law firm that would become Davis, Polk, and
Wardwell. They were counsel to both J. P. Morgan and Company and Guaranty
Trust. Taking charge of Davis’s life in his vigorous style, Harry Davison had
whisked him through a weekend of golf at the Piping Rock Country Club on
Long Island and convinced him to join Wardwell’s firm. In his familiar role as
Henry Higgins, Davison even influenced Davis’s choice of a home: “We must
find the right place in our own island neighborhood.”3 Davis bought a Locust
Valley estate right near Jack’s and Harry’s. He had exactly the right credentials
for a Morgan man: debonair and dignified, he favored a larger U.S. role in
Europe, supported the League of Nations, and opposed the welfare state and a
progressive income tax. He was also a devout Anglophile and one of the duke of
Windsor’s lawyers. Another friend, King George V, termed him “the most
perfect gentleman” he had ever known.4
At first, Davis was deterred from seeking the Democratic nomination because
of the Morgan handicap. Then he published a cogent letter stating that a lawyer
could have rich clients and maintain the public trust. His cause was taken up by
Walter Lippmann of the New York World, who praised his talent and integrity.
Davis’s Democratic opponent, William McAdoo, drew support from the South
and West, always aflame with anti-Morgan sentiment. At the June 1924 national
convention, William Jennings Bryan, mustering the strength for one last vendetta
against the bank, said, “This convention must not nominate a Wall Street man.
Mr. Davis is the lawyer of J.P. Morgan.”5 In fact, the convention was so bitterly
and hopelessly divided that Davis received the nomination after a record 103
ballots—by which point the prize was worthless. The Republicans retained
power.
One industrialist called Coolidge’s 1924 victory a cocktail for financial
markets, and the decade now began to bubble and fizz. It was the Gatsby era on
Wall Street, with money-making newly glorified. Young Ivy Leaguers turned
away from the social protest of the late teens and flocked to Wall Street. In
Pierpont’s day, the Street had been raw and brawling, no place for the
squeamish. Now it became smart and tony, and “many of the old-line brokerage
firms were staffed by the sons of the rich—to give them something to do during
the mornings.”6 Stockbrokers fancied themselves squires, bred polo ponies, and
hunted foxes. Charles E. Mitchell, chairman of National City Bank, traveled
about in a special railroad car, complete with kitchen and chef, making business
tours as if he were a whistle-stopping president. Corporate directors went to
board meetings by private railroad car, the status symbol of the day.
For the House of Morgan, it was a time of unmatched supremacy. The firm
attained a pinnacle of success no other American bank would ever match. It
stood at the gateway to American capital markets just as the whole world
clamored to gain entry. To those who penetrated its tall glass doors, it offered a
world of fireplaces and leather armchairs, as sedate and intimate as a British
gentleman’s club. All the secretaries were male, although their assistants might
be female. As one reporter said, “Entering there was like stepping into a page of
Dickens.”7 The partners’ rolltop desks were apt symbols for the bank. They were
made of mahogany or walnut, honeycombed with compartments and closed by
sliding down the tambour top; they expressed the private, discreet Morgan style.
The employees were as seduced by this atmosphere as the clients. As publicity
man Martin Egan once said, “If the firm ever fired me I was lost, having been
spoiled for service with any other outfit in the world.”8
The vast majority of people walking by 23 Wall couldn’t bank there. As a
wholesale bank, J. P. Morgan and Company would take deposits only from
important clients—large corporations, other banks, foreign governments. Like
other private New York banks, it rejected deposits from the general public and
accepted money only from wealthy people with proper introductions. It paid no
interest on deposits of less than $7,500 and held no deposit of less than $1,000.
The bank’s power was more than monetary. No other firm had its political
links or spoke with its authority. At a time when the Anglo-American axis
reigned supreme, it was embedded in the power structure of both Washington
and Whitehall. Reporters tried to isolate its essence. “It is not a large bank, as
Wall Street banks go,” said the New York Times. “A dozen other institutions have
much larger resources. . . . What really counts is not so much its money as its
reputation and brains. . . . It is not a mere bank; it is an institution.”9 Trust,
goodwill, integrity—these were the strengths always cited by business clients.
This was only part of the story, but it mattered a great deal that the bank always
paid its bills promptly, honored its commitments, and stood by its clients during
emergencies.
As in Pierpont’s day, the bank seemed remarkably small beside the scope of
its work. The Morgan houses preferred smallness, which ensured intimate
contact among the partners. Harry Davison used to say $400 million was all they
could handle without diluting Morgan style. By the end of the 1920s, there
would be fourteen partners at 23 Wall, eight at Drexel in Philadelphia, and seven
each at the Morgan houses in London and Paris. At these firms, the partners all
sat in one big room in the venerable City tradition. Each offered a different
secret for the firm’s success. George Whitney saw conservative financial
management as the critical factor: partners never fooled themselves about the
quality of their loans and stayed 80 percent liquid at all times. Lamont had a
flywheel theory—the bank thrived because it was cautious in boom times and
aggressive in bad times. Jack would later state memorably that the bank did
“first-class business in a first-class way.”
Wall Street legend accurately claimed that Morgan partners made $1 million a
year; with Jack Morgan and Tom Lamont, this figure rose to as much as $5
million by decade’s end. A Morgan partnership was the plum of American
banking. Many firms chose partners who brought in new capital or new clients,
but J. P. Morgan stuck to Pierpont’s meritocratic approach; any white, Christian
male might qualify. Many partners had family ties, and new Morgans, Lamonts,
and Davisons would join the bank in the 1920s; 23 Wall never had rules against
nepotism. But the outstanding partners, those who created the Morgan mystique
—Harry Davison, Tom Lamont, Dwight Morrow, and Russell Leffing-well—
were chosen strictly on their merits. As much as any other factor, the caliber of
the men recruited would explain the extraordinary staying power of the House of
Morgan.
The activities of these Jazz Age celebrities were avidly followed in the press.
Those partners involved in international finance and diplomacy traveled
constantly and spent several months abroad each year. When transatlantic liners
left New York, reporters would scan the passenger lists for Morgan partners,
hoping to land a shipboard interview. Partners were so prominent that B. C.
Forbes even reviewed their golf games, which he found disappointing, as if some
chance for perfection had been missed.
From the marble Morgan halls emerged $6 billion in securities underwritings
between 1919 and 1933—far more than from any other bank. A third were
railroad bonds, another third foreign bonds, and the last third corporate bonds.
Like the growing government accounts, the domestic roster was matchless—
U.S. Steel, General Electric, General Motors, Du Pont, AT&T, IT&T,
Montgomery Ward, Kennecott Copper, American Can, Con Edison, and the New
York Central. By managing securities issues for these companies and assigning
syndicate places to other banks, the House of Morgan defined the pyramid of
Wall Street power. It also performed humdrum services—foreign exchange,
banker’s acceptances, and commercial credits—that were the bread-and-butter of
merchant banking. Not every partner enjoyed the fantasy life of a Tom Lamont
or a Dwight Morrow.
The Gentleman Banker’s Code was alive and well on Wall Street in the 1920s.
The House of Morgan didn’t advertise or post a nameplate. It didn’t chase
customers or open branches; clients still paid Morgan partners the ancient tribute
of traveling to see them. Competition was elegant and masked behind elaborate
courtesies. Clients were mortgaged to one bank and needed permission to switch
to another. As Otto Kahn explained, “Kuhn, Loeb & Co. and firms of similar
standing would not even touch any new business, on any terms, if the
corporation concerned was already a regular client of another banker, and had
not definitely broken off relations.”10 From the outside, it resembled polite
collusion; underneath, it could be vicious. Far from objecting to exclusive
relations, businessmen boasted about their bankers and considered a Morgan
account a hallmark of success.
Morgan partners still sat on boards of favored companies but were more
selective than in the days when Charles Coster kept abreast of fifty-nine
companies. Partners didn’t descend lightly from Olympus. Martin Egan
remarked that “there is a constant plea to get Morgan partners on all manner of
committees and into all sorts of organizations. The process is diffusive and
cheapening.”11 Although the Morgan bank took stakes in its companies, partners
agreed in the 1920s not to get involved in outside enterprises. Gradually, if
imperceptibly, the banker was becoming less a corporate partner and more a
professional, a disinterested intermediary. This was the transition favored by
Louis Brandeis, and it would be markedly speeded up by New Deal reformers.
In Pierpont’s day, weak companies needed to lean on strong bankers. But by the
1920s, a Standard Oil of New Jersey or a U.S. Steel had a stability comparable to
that of the House of Morgan itself.
Who were the other Morgan partners? They fit a rough profile—white, male,
Republican, Episcopalian, and Anglophile, with an Ivy League education and
eastern seaboard antecedents. Harvard was the alma mater of Jack Morgan and
his sons and was clearly the preferred school. The bank was perhaps most
selective about religion—race wasn’t even an issue then, so remote were blacks
from the world of banking. Jews were definitely forbidden but had opportunities
elsewhere on Wall Street. Private Jewish banks continued to win business, such
as retail underwriting, thought vulgar by the blue-blooded Yankee banks.
Lehman Brothers had both R. H. Macy and Gimbel Brothers among its clients.
Some Jewish bankers lived in an opulent style surpassed only by the Morgans.
Otto Kahn of Kuhn, Loeb built a Norman castle on Long Island’s North Shore
that had 170 rooms, 11 reflecting pools, a zoo complete with lions, an 18-hole
golf course with a resident pro, a Georgian dining room that seated 200, and a
staff of 125 servants. It would later be the set for Citizen Kane. But until after the
Second World War, no Jew would penetrate the House of Morgan.
On the Wall Street of the 1920s, Catholics were borderline cases and often
found it harder than Jews to enter high finance. Snubbed by Protestants, they
turned to stock market speculation by default, and Jazz Age plungers were
disproportionately Irish. Armed with ticker tape and telephones at the WaldorfAstoria Hotel, Joe Kennedy made a fortune in stock pools but still found Morgan
acceptance elusive. One day, he decided to break the ice with the bank. He
marched into 23 Wall and asked for Jack Morgan. He was curtly told Mr.
Morgan was too busy to see him. Before the Morgan gates, he bore the double
stigma of being a Catholic and a stock market operator.
The best-known Morgan Catholic was certainly Edward Stettinius, yet even he
switched to his wife’s more acceptable Episcopalianism and became a vestryman
of Saint James Episcopal Church. Settling his spiritual accounts in 1921,
Stettinius reverted to Catholicism and wrote Saint James a guilt-ridden letter of
resignation: “I have come to feel strongly that a Vestryman should not only be a
regular attendant at your services, but also a communicant and an ardent and
consistent supporter of the Episcopal faith. Unfortunately, however, I find myself
steadily drawing away from, rather than toward, the Episcopal Church.”12
A compulsive record keeper, Stettinius has left us a detailed inventory of a
partner’s life in the twenties. He entertained magnificently at his Park Avenue
mansion. For the debutante ball of their daughter Betty, the Stettiniuses invited
three hundred guests, including dancers and musicians from Tokyo’s Royal
Theater. (Betty later married Juan Trippe, founder of Pan American Airways.) In
the cellar of Stettinius’s mansion was enough liquor to float a battleship: 336
bottles of gin, 196 of sauterne, 79 of sherry, 60 of champagne, 114 of vermouth,
40 of Haig and Haig Scotch, 88 of claret, 32 of port, 53 of amontillado, 26 of
Park and Tilford Topaz—over a thousand bottles of fine liquor.13 From a Broad
Street tobacconist, he would order six thousand Havana cigars at a time and then
draw down his “balance.” With six cars and several houses to maintain, it cost
Stettinius $250,000 a year just to cover basic living expenses—perhaps the
reason why he approached his work with such famous thoroughness.
In 1922, he bought a thirty-four-acre estate overlooking Long Island Sound
and was among those partners who lived close to Jack’s Glen Cove mansion, like
medieval vassals biding near their lord. A meticulous man who left nothing to
chance, Stettinius decided to create a Morgan cemetery at Locust Valley. The
local church, Saint John’s of Lattingtown, provided spiritual solace to many
tycoons and was called the millionaire’s church. On Sunday mornings, the
collection plate was passed around by Jack Morgan himself—surely a heavenly
treat. Jack was so fond of the church that he redecorated its interior in carved oak
brought over from a small Scottish church. Stettinius’s plan was to buy up
property beside the church burial ground on which to create a cemetery.
The one obstacle was a New York State law forbidding cemetery expansion.
So in April 1923, Stettinius lobbied state lawmakers for special legislation. Then
he plotted a takeover of the Locust Valley Cemetery. On June 1, 1925, the
cemetery’s annual board meeting was packed with Morgan luminaries, including
Jack’s son-in-law Paul G. Pennoyer, Harry Davison’s son, Trubee, and Stettinius.
It was perhaps the greatest show of financial strength in cemetery history. After
winning control, they hired architects and landscape gardeners to spruce up the
shrubbery and install fancy wrought-iron gates. What resulted was a double
cemetery: “The older, open section of small plots continued very much as it had
been, while the new sections of woods and spacious glades became a Valhalla
for Morgan partners and their friends.”14 Having made these arrangements,
Stettinius took a well-earned rest in plot number 7. Many blamed his wartime
labors for his death. In any case, he perpetuated the Morgan tradition, started by
Charles Coster, of heroic exertion and premature death.
The partner who most typified the Jazz Age was that small miracle of
sophistication, Tom Lamont. Socialite and sportsman, he loved to camp in the
High Sierras or fish for Canadian salmon. To the bank’s image he added an
urbane 1920s gloss, a shade literary. If a Morgan partner suggested a stylish,
well-rounded Anglophile, a Republican who could travel in Democratic circles,
a liberal internationalist orthodox in domestic affairs, then Lamont was surely
his prototype. Yet this figure who symbolized the 1920s on Wall Street harbored
a secret ambivalence toward it. “That decade, with its exotic exuberance of
prosperity and its speculative excesses in almost every phase of economic life . .
. was for America a decadent one,” he later wrote.15
Lamont became the richest Morgan partner, his wealth matched by a
progression of stately homes. First he and his wife, Florence, lived in
Englewood, New Jersey—so thickly populated with Morgan partners it was
called the bank’s branch office. They joined the Dwight Morrows in the local
Shakespeare club, where they all took parts and read plays aloud. From 1915 to
1921, the Lamonts rented Franklin Roosevelt’s house on East Sixty-fifth Street
while its owner served as assistant secretary of the navy. Then, in 1921, Lamont
bought the townhouse at 107 East Seventieth Street that would become a
stopping place for visiting politicians, writers, and socialites, it featured
everything from a British butler to a solarium. The Lamonts were terribly
ambitious, determined to know everybody of importance in New York and to
snare every celebrity who passed through town. To a remarkable extent, they
succeeded.
For recreation, they bought Sky Farm, an island retreat off the Maine coast
with a panoramic view of Penobscot Bay. In 1928, they purchased Torrey Cliff, a
hundred-acre estate on the Palisades that formerly was owned by a well-known
botanist, John Torrey, and later would be donated to Columbia University for its
geological observatory. The property encompassed cliffs and woodlands, brooks,
flowers, and spectacular vistas of the Hudson River. Finally, Lamont and John
Davis regularly stayed at Yeamans Hall in South Carolina, a millionaires’
development with over a thousand acres of golf courses, forest paths, and giant
moss-covered oaks.
Florence Lamont was a short, bright, pleasant-looking woman with a
thoughtful stare. She took herself seriously, both as a hostess determined to snare
celebrities and as an intellectual. A graduate of Smith with a master’s degree in
philosophy from Columbia, she supported numerous causes, including birth
control and women’s trade unions. Earnest, a trifle tedious, always craving
intellectual companionship and stimulating company, she sometimes had a
bluestocking intensity. Anne Morrow Lindbergh, after hearing Florence make
grandiloquent speeches about pacifism at a social gathering, noted in her diary:
“Mrs. Lamont distrusts all informal, feminine discussion, thinking it gossip. Is it
because she can’t do it very well?”16
High-spirited and sociable, the Lamonts were on everybody’s party list in the
Jazz Age, and they knew dozens of celebrities. When their son Corliss went to
Oxford in 1924, he lived with the Julian Huxleys, lunched with Lord and Lady
Astor at Cliveden, and took a weekend with H. G. Wells—such was the range of
his parents’ friends. The Lamonts’ East Seventieth Street townhouse echoed with
laughter and ideas, as their children Corliss, Tommy (later a Morgan partner),
and Margaret turned it into an exuberant debating society. Again, Anne Morrow
Lindbergh has left a vivid impression of this animated household: “To the
Lamonts’ for dinner. . . . We had decided before we got there that we would not
argue. Instead we let the Lamonts argue among themselves. Tommy and Corliss,
Mrs. Lamont and Mr. Lamont, Margaret and Tommy, Margaret and Mrs.
Lamont, back and forth across the table. Tommy, loudly and platformly; Corliss,
lightly, nervously, and humorously. Margaret, of course, dead serious. Mr.
Lamont suavely and Mrs. Lamont petulantly. We all sat back quite happily . . .
and listened. It was great fun.”17
If Florence sometimes took herself too seriously, Tom, with his genial energy,
roused her from it. He could never have enough friends, enough dinners, or
enough lively chatter. He had a marvelous sense of humor, which surprised many
people who imagined that Morgan bankers must be dour and self-important. He
once said of an enemy that if he had ordered a trainload of sons of bitches and
received only that man, he would consider the order amply filled. Once, Tom
Lamont and Betty Morrow wanted the two couples to throw a party together—
they were the good dancers—but Florence and Dwight balked. So guests
received the following invitation:
Mrs. Dwight Morrow and
Mr. Thomas Lamont
Request the honor of your company
at a dance given in honor of
Mrs. Thomas Lamont and Mr. Dwight Morrow.18
Morgan moved through the twenties like a monarch. One journalist
described him embarking from his limousine at 23 Wall: “I saw two other men
inconspicuously draw themselves up in an attitude of attention, like soldiers in
mufti, acting on their instincts or through force of habit. . . . The great doors with
their huge panes of spotless glass and their polished brass swung open and
shut.”19 He enjoyed his spot at the top of the Morgan empire. About to present
Pope Pius XI with restored Coptic texts in 1922, he made this observation: “My
special job is the most interesting I know of anywhere. More fun than being
King, Pope, or Prime Minister anywhere—for no one can turn me out of it and I
don’t have to make any compromises with principles.”20
Jack lived regally at his 250-acre island estate, Matinicock Point, off the North
Shore. Visitors passed through enormous wrought-iron gates and down an
endless drive shaded by linden trees; in season bloomed several thousand tulips
and daffodils under the direction of Jessie Morgan. The estate required several
dozen full-time gardeners. There were also cows, horses, greenhouses, boxwood
and rose gardens, cottages for the staff, and a dock down at the Sound.
Amid open lawns and high trees, the red-brick mansion was grander than any
of Pierpont’s residences. It was designed by Grant La Farge with an imposing
columned entrance. Inside, three famous ladies—Rubens’s Anne of Austria,
Gainsborough’s Lady Gideon, and Sir Thomas Lawrence’s countess of Derby—
stared down from the walls of a house specially fireproofed for them. The
majestic stairway of the forty-rive-room house was lined with beautiful floral
arrangements.
Jack liked quiet, domestic pleasures. Delicate and sedentary, a born dabbler,
he enjoyed detective novels and crossword puzzles. His literary hero was
Rudyard Kipling. He disapproved of contact sports, and when his two sons,
Junius and Harry, went to Groton, he protested the introduction of football,
calling it immoral, dangerous, and brutal.21 He loved taking drives in his
chauffeured cars and had four of them—two Rolls-Royces, a Lincoln, and a
Buick roadster.
He was fanatical about his privacy and hostile to the press. The Morgans
always kept their daughters and granddaughters off the society pages. Like his
father, Jack often threatened intrusive photographers and would screen his face
with his Panama hat as he left church on Sunday mornings. Because he
commuted to Wall Street by water, photographers awaited him on boats in the
Sound. To foil them, he constructed a flowery archway that curved down to the
dock and obscured his movements. The only problem was the gangplank. For the
final seconds it took to board the boat, his butler, Henry Physick, would remove
JACK
his coat and hold it up to shield his master from the press. Sailing home from
work, Jack would take afternoon tea on board.
Only once did Jack submit willingly to press photographs. One day, as a
motorboat was taking him out to the Corsair the photographers were in their
usual hot pursuit, when Jack’s Panama hat blew into the Sound. A photographer
fished it from the water and gave it to Jack’s boatswain, saying, “Your boss
hasn’t treated me with much courtesy, but I am glad to do him a favor.”22 Like
Pierpont, Jack was sentimental and could be disarmed by a gallant gesture.
When he heard the story, he ordered the photographer up on deck and posed for
twenty minutes of pictures.
Both Jack and Jessie loved England, which they visited each spring and
summer. When the London Times tagged him an English squire, Jack was
thrilled.23 He had a London townhouse at 12 Grosvenor Square and bequeathed
Princes Gate, the old family townhouse, to the U.S. government as a residence
for the American ambassador. Just as George Peabody had hosted annual Fourth
of July dinners, Jack hoped future ambassadors would “live like gentlemen and
have their Fourth of July receptions in adequate surroundings.”24 Later on,
Princes Gate would be the wartime residence of Ambassador Joe Kennedy, who
finally slipped into the House of Morgan through a back door. It was the house
opposite Hyde Park fondly remembered by the Kennedy sons.
Jack’s major British residence was Wall Hall, his three-hundred-acre estate
north of London with artificial lakes and gardens. He ruled the village like a
whimsical Prospero. He didn’t simply live in the village; he owned it. As
Fortune magazine explained, “At Wall Hall he is a Tory squire with the whole of
Aldenham Village as his property except the ancient church, and with all the
villagers in his employ, each supplied with a rent-free house and registered milk
and free medical treatment and an old-age pension and membership in the
Aldenham Parish Social Club.”25
A paternalistic landlord, he fretted about his villagers. So that they wouldn’t
loaf, he provided them with cricket grounds, tennis courts, and bowling greens.
He was afraid that the village tavern, the Chequers, might be bought by a brewer.
So he dispatched Teddy Grenfell on a secret mission to buy it at any price. This
high-level corporate raid occasioned some drollery between them. “It is a new
kind of business for me altogether,” Jack said, “as I have owned many kinds of
property, but never a public house before, and I am quite excited at the
investment.”26 Rather old-maidish, Jack considered taking away the tavern’s
liquor license. But the problems that accompanied Prohibition in America
persuaded him to retain the pub license. He even added a hall for movies and
dancing, saying, “It’s really going to make a difference to a good number of
honest, hard working and powerfully dull men and women.”27
To an extraordinary degree, he was a creature of custom and comfort. So that
he could drive without removing his plug hat, he had an English firm design a
car with a special high top. He corresponded with a haberdasher about socks that
didn’t slide smoothly enough over his heel. Perhaps fearing his own emotions—
or else in homage to his Yankee-trading ancestors—he always wanted things
around him to proceed tidily. He was obsessed with punctuality. At Wall Hall, he
had so many clocks that someone came in weekly just to rewind them. For gifts,
he often gave his partners rare gold watches.
The year had its unchanging rhythms for Jack. The high spot was August 12—
the Glorious Twelfth that launched the Scottish grouse-hunting season. “Nearly
everybody I know has started for shooting in Scotland,” he once wrote a partner
in early August.28 Who else in America could make such a statement? After
1913, Eric Hambro and Jack jointly owned Gannochy Lodge near Edzell, in
Scotland. They and their eminent guests bagged up to ten thousand birds a year,
and each hunter was attended by a butler. In honor of Jack, the Scottish retainers
even put together a “Morgan tartan.”
For his Manhattan residence, Jack retained the townhouse at Madison Avenue
and Thirty-seventh Street that his father had bought for him. Somber and
brooding outside, it was light and airy within. It had white marble fireplaces,
French revival furniture, and crystal chandeliers. When staying there, Jack
would visit the library next door each day. He added four thousand books and
manuscripts to his father’s nineteen thousand and continued his raid on
illuminated books and British literature. A tip from Tory leader Stanley Baldwin
brought him the manuscript of Sir James Barrie’s Shall We Join the Ladies? “I
hate manuscripts leaving the country,” Baldwin confessed to Jack. “But if they
have to go, I would far rather they found a home with you than anybody else!”29
After his father’s death, Jack hadn’t been able to pursue collecting and was
preoccupied with settling the estate. Now, in another parallel to Pierpont’s life,
Jack widened his collecting as he moved into his midfifties. Once again, Belle
Greene went on buying trips to Europe, and Jack regarded her with affection and
slightly fearful awe. When four rare manuscripts owned by the earl of Leicester
came on the market, Greene was afraid to commit so much money on her own.
She asked Jack to negotiate. He went to Europe and after a sleepless night
bought them for an estimated $500,000. Jack told the seller: “My librarian told
me she wouldn’t dare spend so much of my money. But just the same, I wouldn’t
dare face her if I went home without the manuscripts.”30
Jack hadn’t yet erected the sort of monument to Pierpont that Pierpont had to
Junius. In 1924, he incorporated the Pierpont Morgan Library in his father’s
memory, with Belle Greene as the first director; he provided a $1.5-million
endowment. Perhaps recalling the brouhaha over the art collection’s breakup, he
summoned reporters for a wistful interview. Seated in the West Room, where
Pierpont had worked and Junius stared down from above the mantel, Jack said,
“This is the room where my father literally lived. I think it is probably the most
peaceful room in New York. You never hear a thing here except occasionally a
bad automobile horn.”31
As he took reporters around the library, he snatched up interesting items and
talked about them. Taking up a Dickens manuscript, he said, “Scrooge and all
the rest of them are there. Isn’t that nice?” In his remarks may be heard the
plaintive note of a man seeking public love—love that he felt he deserved but
was always denied. At the end of his tour, he asked, “Now what do you think of
it? Have I done a good thing in making this gift?”32
In 1928, Pierpont’s brownstone mansion next to the library was torn down and
replaced by an annex, designed by Benjamin Wistar Morris, to provide
exhibition facilities and more space for scholars. (One now enters the library
through the annex.) Under the imperious sway of Belle Greene, the library
remained a jewel-box institution with a tiny staff. Belle could be curt with
dilettantes, voyeurs, and just plain fools, but her stature in the museum world
was mythical on account of her devotion to genuine scholars.
While Jack was paying tribute to his father, he tried to groom his two sons to
take over the bank. His eldest, Junius Spencer, Jr., graduated from Harvard in
1914. He served as a junior officer on a destroyer off the English coast in the
war, an experience that left him with shattered nerves. Tall and extraordinarily
handsome, with the face of a sensitive actor, he became a Morgan partner in
1919. Warmly approachable and possessed of a dry sense of humor, Junius was
probably the nicest Morgan—but the most dismal businessman. Jack tried to fool
himself that Junius was cut out for banking and sent him to Morgan Grenfell for
a two-year apprenticeship in 1922. Jack wrote to Grenfell, “I cannot tell you how
glad I am to have him go over and learn London methods, and the London
outlook of business, under your careful eye.”33 Junius went through the motions
of being a banker and served as a director of U.S. Steel and General Motors. But
his real dream was to be a marine architect. His would be a sad, wasted business
life, showing the limited options open to sons in a banking dynasty. Like his
father and grandfather and brother, Junius became a commodore of the New
York Yacht Club—the only certifiable Morgan activity that really fit him.
Jack’s younger son, Harry Sturgis, looked more promising as a businessman.
Born in London in 1900, he was short and stocky, with a more aggressive and
temperamental air than Junius. If Junius looked friendly and rather languid,
Harry was all thrusting energy, his chin assertive, his lips tightly compressed, his
gaze fiery. In 1923, one week after graduating from Harvard, he married
Catherine Francis Adams, daughter of Charles Francis Adams, secretary of the
navy under Herbert Hoover. That year, Harry started as a $15-a-week Morgan
messenger and ran securities around Wall Street. As a Christmas present in
December 1928, Harry received his $1-million-a-year Morgan partnership.
During this period, Jack suffered two emotional blows from which he never
recovered. In 1924, he lost his mother, who was still living in the original
Madison Avenue mansion; it was torn down only after her death. She had
survived into her eighties, by then a stone-deaf old woman. Jack, as a boy, had
gravitated toward his mother’s warmth and gentleness. His own close marriage
to Jessie probably recapitulated the earlier relationship.
Like Fanny, Jessie Morgan became somewhat weak and sickly, but there were
major differences. Jessie was a natural executive and extremely efficient in
running four giant households, supervising butlers, footmen, and housekeepers.
She had a shy, matronly look that hid steely discipline. Feminine on the outside,
she was tough at the core—as when she lashed out at the would-be assassin in
1915. Neither she nor Jack believed that women should be emancipated, and she
tended her gardens, collected lace, and gathered drawings of flowers. She had no
interest in politics or lunching with other women. Beneath the frills, she was
determined and even slightly fearsome.
Jack Morgan’s happiness revolved around her and his children. In April 1925,
he told Grenfell, “The only excitement in the family—and it is real excitement—
has been the arrival in this woeful world of Frances’ twins, running the number
of my grandchildren up from nine to eleven in twenty minutes. This satisfies
even my most ambitious aspirations.”34 What didn’t jibe with this picture of
family harmony was that Jack and Jessie were so engrossed with one another
that their children felt excluded. Jessie served Jack, adored him, and advised him
in every aspect of his life. She was the invisible safety net that stopped him from
falling, and he relied on her judgment implicitly.
Then, in the summer of 1925, Jessie contracted a sleeping sickness—an
inflammation of the brain—then prevalent in the United States. It was thought to
derive from the influenza pandemic of 1917-18. Jessie fell into a coma and had
to be fed through a tube. Antibiotics weren’t yet available, and eminent
physicians could only counsel patience. They told Jack the disease was running
its course and that Jessie would eventually wake up. A trusting person, Jack
waited and prayed. Afraid of submitting to melancholy, he put on a brave front
and reported to 23 Wall every day, taking comfort from Jessie’s smallest stirrings
and from the fact that, as she slept, she was well nourished and gaining weight.
He wrote: “Jessie is getting on well, the doctors assure me, and they all assure
me that the recovery, though very slow, will ultimately be complete. Though she
is still wholly unconscious, there are little almost imperceptible signs that she
will eventually emerge from that state.”35 And: “Of course no one can tell how
long she must sleep, but while she sleeps she is not conscious of any pain or
discomfort, and the cure is proceeding all the time.”36
How to reconcile this tender Jack Morgan with the stern anti-Semite of earlier
pages? He was a true Morgan. His humanity was deep but narrow, his world
divided between those who counted and those who did not. With his family, he
was capable of total love. By mid-summer, Jessie had slowly improved, and Jack
was buoyed by reports that her condition was better than at any time since the
onset of the illness. Doctors assured Jack he could go to work without fear. On
August 14, 1925, he went to the office only to receive a late-morning call to
return home at once. By the time he arrived, Jessie was dead. Her heart had
stopped from what doctors thought was an embolism. They were stunned by the
sudden reversal.
Still recovering from his mother’s death, Jack was distraught, inconsolable.
He mourned deeply and reverently, much as Pierpont had mourned the sainted
Mimi. In a moving outburst of grief and affection, he told Lamont, “Well, I have
all these years to look back upon, everything to remember and nothing to
forget.”37 In a letter to a partner, Lamont described Jack during Jessie’s illness:
“[He] had felt perfectly confident the last few weeks that his wife was going to
come out all right. He was determined that she should. He thought of nothing
else day and night. He was looking forward to the time when she would emerge
from her sleep. He was most anxious to be with her at that time, thinking that his
presence might be an aid to her in regaining her normality . . . he had been
wonderful, courageous, and perfect throughout it all.”38
In her will, Jessie left the bulk of her property to her two sons and two
daughters. She included an oddly touching tribute to her husband—one can
almost see the ironic twinkle in her eye as she wrote, “I feel sure that if, through
any unforeseen circumstances, my dear husband should ever be in need, my
children will share with him the property derived from me.”39
After his wife’s death, Jack became more withdrawn. At Matinicock Point, he
left her bedroom as she had left it and tended her tulips and English rose garden.
(Becoming a dedicated gardener, he entered dahlias in a Nassau County show
and won the J. P. Morgan Prize!) Well drilled by Jessie, the servants ran the
estates without her. Although now alone, Jack closed no houses and sold no
boats or cars. In some ways, he refused to acknowledge the change in his life.
Many of his friends testified to the eerie sense that Jessie still was present—not a
superstitious feeling so much as one of Jack refusing to let her rituals die. In
1927, Jack bought up waterfront property in Glen Cove to dedicate a $3-million
Morgan Memorial Park to his wife. From its quaint clubhouse with its fluted
eaves, Jack embarked on his Mediterranean cruises each year.
Solitary, clad in tweeds, and smoking his meerschaum pipe, Jack wandered
about his formal gardens, a melancholy widower. His partners noticed his
loneliness. Easily wounded, he had had a tendency toward melodrama and selfpity, both of which now became pronounced. Writing of his fourteen
grandchildren in 1928, he told a friend, “It makes a great difference to me in my
life, which is necessarily very lonely.”40 Sometimes he asked his chauffeur of
twenty-five years, Charles Robertson, to drive him down to the Morgan
Memorial Park. He would sit beside the chauffeur and stare silently at the water.
For all his money, he now thought himself the loneliest of men.
CHAPTER FOURTEEN
GOLDEN
BY the mid-1920s, the Morgan story had come full circle. Where George
Peabody and Pierpont and Junius Morgan had attained power by tapping the
flow of British capital to America, the relationship was now fully reversed.
London’s merchant banks, hobbled by the postwar embargo on foreign loans,
had to act on a smaller stage, their overseas lending largely limited to British
dominions or colonies and reconstruction loans. Meanwhile, Wall Street thrived,
and J. P. Morgan and Company far surpassed Morgan Grenfell in power.
Managing the British portion of the international loans sponsored by 23 Wall,
Morgan Grenfell was somewhat buffered from the general London decline.
In early 1927, Morgan Grenfell left 22 Old Broad Street and took up residence
at 23 Great Winchester Street. The new headquarters stood at the angle of a
small, L-shaped street around the corner from Liverpool Street Station. As
former home to the British India Steam Navigation Company, its exterior was
adorned with exotic tropical motifs—cornucopias and vines. The firm had these
stripped away, to create an unmarked townhouse with a tall City doorway that
dwarfed visitors. It was a posh, leisurely place with butlers. A 1926 photograph
of Morgan Grenfell’s cricket team shows what looks like a set of pipe-smoking
aristocrats—yet some of these young men were clerks or messengers.
The resident partners at Morgan Grenfell were handpicked power brokers.
Though their names aren’t conspicuous in history books, they mediated dealings
between the British and American financial establishments. J. P. Morgan and
Company and Morgan Grenfell always enjoyed intimate relations. They
swapped young apprentices, visited regularly, and kept up a vast correspondence
that provides a comprehensive portrait of Anglo-American finance between the
wars. Within the Morgan empire, however, the British house was subservient.
And though the two houses collaborated on many deals, they also did much
separate business.
If Lamont set the tone in New York, the London grandee was Teddy Grenfell,
later Lord Saint Just. Fastidious and dashing, with pocket handkerchief, trim
mustache, and smooth, glossy hair, he had a smart air and a brittle wit. His keen
eyes sloped down in a penetrating stare that spied out people’s thoughts; Grenfell
had the clear vision of the coldly unsentimental. Outwardly, he was neat and
formal and correct in his behavior. But his judgments, expressed in a torrent of
letters to 23 Wall and to his close friend, Jack Morgan, were funny, unsparing,
and fiercely opinionated. Nobody in the House of Morgan was more prescient
about people and affairs than Teddy Grenfell. He especially delighted in
exposing the folly of social reformers. In his sneering but incisive way, he
exhibited much racial and religious bigotry and poured buckets of scorn on his
targets. This probably appealed to Jack, who shared Grenfell’s prejudices but
was more reticent about expressing them. By 1922, Grenfell was not only a
Bank of England director, but a conservative member of Parliament for the City.
The slim, handsome Grenfell remained an eligible bachelor until the age of
forty-three, when he married twenty-three-year-old Florence Henderson.
Florence’s father was a director of the Bank of England and chairman of the
Borneo Company, a Far East trading concern. At the wedding, legend has it, the
church was crammed with women weeping at their loss. With the exception of
Virginia Woolf, who found Florrie “dulled” and “coarsened” by wealth,
everybody seemed enchanted by Grenfell’s bride.1 She was tall, beautiful, and
distinguished-looking, with a deep, fascinating voice. Anne Morrow Lindbergh
found her “fawnlike and fragile” and picked up a certain gamine quality about
her, a feeling she was “incorrigibly young . . . and likes to be teased.”2 She
likened Florrie to Virginia Woolf’s Mrs. Dalloway—a sociable woman who
knew everybody and loved to organize events.
It proved a difficult marriage. Florrie had an unconventional streak. She
danced, took voice lessons, and became an early patron of Diaghilev’s Ballets
Russes. The impresario referred to her as his fidèle amie and invited her to
rehearsals. But she was more than just a society patroness plowing Morgan
Grenfell money into dance. She was a woman of sophistication and flair who
went to the theater every night and wrote penetrating blurbs on what she saw. All
this was lost on the brilliant but limited Grenfell, who golfed and sailed and had
no time for the artistic modernism that entranced his young wife. He would
come home to their townhouse at 4 Cavendish Square and find partly clad
Russian dancers and musicians strewn about the place. The famous ballerina
Markova attended parties there, and Florrie also befriended Lydia Lopokova,
later the wife of John Maynard Keynes. Snobbish and aloof, settled in his ways,
Grenfell was jarred by the bohemian activity, despite his affection for Florrie.
His wife, in turn, wasn’t ready to submit to the stuffy pleasures of the
countinghouse crowd. The marriage lasted, but more through friendship than
love.
The other reigning partner at Morgan Grenfell was the tall, redheaded Vivian
Hugh Smith, later the first Lord Bicester. He had a broad, open face and
handlebar mustache and a nature more equable than Grenfell’s. In early pictures,
he sucks on a pipe and smiles like the cat who swallowed the canary, as if he
knew many City secrets but wouldn’t tell. He seldom got depressed, loved to tell
shocking stories in deadpan style, and had unshakable composure. He was a
country squire, with a mad passion for horses and steeplechase contests—while
still at Eton, he was disciplined for sneaking off to Ascot. He occupied strategic
posts—governor of the Royal Exchange Assurance Company, chairman of the
City’s Conservative party, and a director of Associated Electrical Industries. His
family connections ramified everywhere, and among his five brothers were
bankers, admirals, and businessmen. (His brother Lancelot, senior partner with
stock brokers Rowe and Pitman, executed many Morgan Grenfell deals.) Family
scuttlebutt claimed Smith was envious of his cousin Ted Grenfell, whom, he felt,
stole too much of the glory.
In aristocratic circles, Smith was known as the establishmentarian with the
outrageous wife. Slim and very Irish, with pale gold hair, Lady Sybil Smith
brought seven more City Smiths into the world. She combined great charm and
conviviality with deep political commitment. Beyond her interest in theosophy,
which she shared with Monty Norman, she was a dedicated suffragette. As
treasurer of the Women’s Social and Political Union in 1913, she was its chief
fund-raiser in Mayfair drawing rooms; with her delightful voice, she interspersed
her pitch with musical interludes. The daughter of her great friend, Emmeline
Pankhurst, remembered Lady Sybil singing “in her long straight gown, like a
nymph from a Greek vase.”3
Vivian Smith was very amused by Lady Sybil, and they teased each other
mercilessly. Yet tolerance had its limits. One day, Vivian picked up the
newspaper and read the headline “LADY SYBIL SMITH ADOPTS CHILD.” Vivian
quickly unadopted the child, a waif Sybil had picked up. In July 1913, came the
great test of his composure. Sybil joined a delegation of militant suffragettes
who invaded the House of Commons to oppose the Male Suffrage Bill. After an
unsatisfactory interview with Reginald McKenna, then the home secretary, some
of the women began making speeches; scuffles and arrests ensued. Lady Sybil
pushed a constable who had taken a suffragette into custody and was sentenced
to fourteen days. She insisted upon going to prison in solidarity with her sisters.
Once in prison she gaily launched a hunger strike, as if it were a lark. Cool as a
cocktail-party hostess, she wore a “tea-gown and golden slippers,” as another
suffragette recalled.4 But the government didn’t like having an earl’s daughter in
prison, and Lady Sybil’s sentence was commuted to only four days. Still,
McKenna swore no favoritism was shown. During her prison stint, Grenfell
cabled Jack that Vivian was trying to be a good sport, apparently with difficulty:
“V.H.S. distressed, but as usual considerate and dignified.”5
The Smiths were as odd a couple as the Grenfells. Sylvia Pankhurst,
Emmeline’s daughter, saw Vivian as a “very dull foil” to Sybil, who managed a
day nursery for destitute mothers and their babies in London’s East End. Sybil
exhibited an idealism never apparent in her husband. As Pankhurst wrote of her,
“She possessed a rare absence of class consciousness, a sensitive perception of
the good qualities in other people and the precious ability to perceive that, at
bottom, we most of us have the same needs.”6 Lady Sybil naturally became
friends with her New York counterpart in the Morgan universe, the activist
Dorothy Whitney Straight.
Grenfell emerged as an important conduit between the City and
Wall Street at a time when U.S.-British rivalry threatened to overwhelm
friendship. As American exports boomed under the tutelage of Herbert Hoover’s
aggressive Commerce Department, British heavy industry languished. Britain
felt threatened by America’s new industrial strength and marketing talent. There
was a fad for American movies and cosmetics in Britain, an Anglo-American
battle for raw materials, and a first wave of investment in Britain by American
industry, symbolized by Ford’s new factory at Dagenham on the Thames and
General Electric’s assault on the British electric industry.
Montagu Norman, who would enjoy an extraordinary reign as governor of the
Bank of England from 1920 to 1944, wished to reestablish London financial
preeminence in the 1920s and reverse the decline in British industry. To do this,
he needed Wall Street money and connections. He found both in the House of
Morgan, giving him power fantastically disproportionate to Britain’s postwar
wealth. The Morgan partners in New York shared his vision of transatlantic
cooperation and Anglo-American partnership, resisting the insular American
mood of the 1920s.
In 1919, Britain was forced off the gold standard. Restoring the link between
sterling and gold became an indispensable first step in restoring the City’s status
as a world financial center. London’s strength in foreign lending had always
been premised on a stable pound. Like king and country, the gold standard was
an abstraction that made British bankers feel snug and cosy. Norman thought it
the best means by which to stop fluctuating exchange rates, and he wanted
England to lead in restoring this monetary discipline.
MORGAN
The American Morgan partners were instrumental in putting England back on
gold. It was their holy cause. As early as September 1923, Russell Leffingwell
told Jack in Scotland that after the grouse season he wanted to speak to him
about “this dream of mine”—that England go back on gold. New to the firm,
Leffingwell said he would “sell his shirt to help England out of this mess” and
asked, “Could anything be more heartening than for England and America to
lock arms for honest money?”7
Like Monty Norman, the Morgan partners feared that if exchange rates
weren’t tied to gold, they would be managed by politicians. Sober finance might
then be held hostage to political expediency, giving a bias toward inflation and
paper money. Keynes was already advancing such heretical ideas. Leffingwell
warned Morgan: “Keynes . . . is flirting with strange gods and proposing to
abandon the gold standard forever and to substitute a ’managed’ currency . . . it
is better to have some standard than to turn our affairs over to the wisdom of the
publicist-economists for management.”8
Teddy Grenfell was Monty Norman’s intermediary between the Bank of
England and Wall Street. He briefed the New York partners about Norman’s
strange temperament and fragile nerves: “Norman elaborates his own schemes
by himself and does not take anyone into his counsel unless he is obliged to do
so in order to combat opposition. . . . As I have explained to you before, our dear
friend Monty works in his own peculiar way. He is masterful and very
secretive.”9 As a Bank of England director, Grenfell also alerted New York
partners to impending changes in Bank of England interest rates—priceless
information—just as Herman Harjes reported on upcoming gold movements by
the Banque de France.
In late 1924, Norman got cold feet about gold. To bolster his confidence, he
went to New York to see Jack and Ben Strong. For Jack, the return to gold was
gospel. Hadn’t his father saved America’s gold standard in 1895? He fervently
told Norman that if Britain failed to return to gold, centuries of goodwill and
moral authority would have been squandered. And Treasury Secretary Andrew
Mellon told Norman that Washington approved of J. P. Morgan and the New
York Fed helping Britain to go back on gold.
Morgan cooperation was vital. For the pound to maintain its new, higher value
in currency markets, the dollar couldn’t pose too strong a competitive threat.
Otherwise, speculators would sell pounds and buy dollars, driving the pound
back down. Either Norman had to maintain high interest rates in London—
drawing money into the pound—or Strong had to keep rates low in New York—
making dollar investments less attractive. The House of Morgan insisted on
higher British interest rates as the answer. Instead, Monty’s loyal friend, Ben
Strong, depressed American interest rates. This was no small technical matter: it
would be blamed by some for causing the 1929 crash on Wall Street.
Strong was always sensitive to insinuations of his being in league with
Norman and wanted to involve the House of Morgan in the gold operation as
political cover. J. P. Morgan and Company could be useful in another way as
well. The British needed a large credit to defend the pound against any
speculative attacks that might occur. Under the law, Strong could make loans to
other central banks, such as the Bank of England, but not to other governments
—for instance, the British Treasury. So it would take Strong and J. P. Morgan
together to provide money to the bank and the Treasury.
Norman had already manipulated a series of short-lived chancellors of the
Exchequer. In 1925, the chancellor was Winston Churchill, who would later
regard the gold decision as possibly his worst political mistake. At sea in
finance, he privately confessed to feeling inadequate in that area and was easy
prey for the devious Norman. Churchill’s son recalled that Norman would appear
at Chartwell and mesmerize Winston by intoning, “I will make you the golden
Chancellor.”10
Grenfell disliked Churchill and privately criticized him as “still at heart a
cheeky, over confident boy.”11 Both Norman and Grenfell wanted pliant
politicians who would relegate financial decisions to the merchant bankers, for
in the twenties the merchant bankers still dominated the Court of the Bank of
England. (The five large commercial, or “clearing,” banks still didn’t have power
commensurate with their resources, which grew fantastically through mergers in
the 1920s.) Before announcing the gold decision in April 1925, Grenfell watched
Churchill as if he were an unpredictable truant who might do something stupidly
independent: “We, and especially Norman, feel that the new Chancellor’s
cleverness, his almost uncanny brilliance, is a danger. At present he is a willing
pupil but the moment he thinks he can stand on his own legs and believes that he
understands economic questions he may, by some indiscretion, land us in
trouble.”12
As an attempt to restore the old imperial pound, the 1925 gold-standard
decision was a colossal miscalculation, a nostalgic attempt to restore Britain’s
former power. It was so lethal because Norman wished to return to gold at the
lofty prewar rate of £1 to $4.86. At that rate, British industry couldn’t compete
with world exports; even Russell Leffingwell thought Norman too heedless of
the British employment situation.
Not everybody cheered the plan. Keynes thought it would weaken British
industry and force a sharp decline in wages to offset the stronger currency.
(Perhaps in retaliation, the merciless Grenfell took to describing Keynes’s new
bride, Lydia Lopokova, as the “little ballet girl.”) Many British industrialists
echoed this alarm, and the jittery Norman almost backed down. One last boost
was needed. Grenfell cabled Jack, “I think the Governor would like me to give
him assurance that you personally still approve of his course of action in this
whole matter.”13 Jack did.
On April 28, 1925, in the House of Commons, with Norman in the
distinguished-visitors’ gallery, Churchill announced Britain’s return to gold.
Fearing a runaway chancellor, Grenfell was relieved that the chancellor didn’t
depart from his prepared text. The New York Fed provided a $200-million credit
to the Bank of England, and J. P. Morgan and Company a $100-million credit to
the British Treasury. Because the pound soared and speculative attacks didn’t
materialize, the credits weren’t needed. By November, Churchill announced that
the embargo on foreign loans was lifted.
The architects were in a self-congratulatory mood. Jack’s friend Prime
Minister Stanley Baldwin praised Strong and the House of Morgan as “men than
whom there are none in the world who stand higher for financial ability and
moral rectitude.”14 The left wing, however, was up in arms about the threat to
British industry and the more than 1-percent commission J. P. Morgan charged
for keeping the unused credit ready. Grenfell itched to counterattack but was
dissuaded by Churchill: “As we are paying a commission to Messrs Morgan, it
would obviously be unsuitable for you to speak in the debate and it would I’m
sure expose you to annoyance at the hand of the Socialists.”15 Grenfell withdrew
to that natural habitat of Morgan men—the shadows.
Before long, Keynes’s worst fears were vindicated, and British coal, textiles,
and steel lost their competitiveness in world markets. Far from revivifying
Britain, the gold standard seemed to accelerate its decline. There arose the
predicted pressures for lower wages to counterbalance a higher pound. But it
was impossible for wages and retail prices to adjust to the world price level. By
late spring 1926, England had suffered a coal strike and a general strike with
venomous overtones of class warfare. (During the strikes, Grenfell joked that he
was glad to be relieved of the roar of motor buses and found the office pleasantly
devoid of business.) When Ben Strong visited London during the strike, he met
with Churchill and Norman. They managed to avoid talk of the gold standard
altogether. Stanley Baldwin and Monty Norman didn’t mention the big blunder
either. They forgot their troubles by playing duets together—Baldwin at the
piano, Norman singing. It was a curiously civilized form of escape as strikers
and policemen clashed in the streets.
the House of Morgan moved from sterling to stabilize other currencies, it
drew closer to the Italian government, which was alarmed by a sudden fall in the
lira in 1925. The fascist government of Benito Mussolini had been in power for
three years, and Wall Street bankers were comforted by the Italian’s macho pride
in the lira’s strength. Ben Strong and Monty Norman favored a loan to stabilize
Italy’s currency but had qualms about il Duce himself. Shocked by a 1926 visit
to Italy, Strong said of the dictator: “I should imagine that he would not hesitate
to cut off a man’s head instantly if he failed to deliver what was expected of
him.”16 And Norman was dismayed by political meddling at the Banca d’Italia
—an affront to the chastity of a central bank.
Tom Lamont, however, viewed Mussolini in a rosier light. In New York
political circles, Lamont enjoyed the reputation of a liberal. His son Corliss, a
socialist and later a professor of philosophy at Columbia, saw his father’s
foreign-policy views as spotless: “Although my father was a successful banker,
and a Republican in politics, he was in essence a liberal, particularly in
international affairs.”17 Corliss praised the tolerant atmosphere of the Lamont
household, dubbed the International Inn for its many visiting celebrities and
intellectuals. One visitor, H. G. Wells, interested Corliss in socialism, and the
two would team up in arguments against the paterfamilias. To his credit, Lamont
handled Corliss’s radical politics with admirable tact. Corliss would view his
own politics not as a negation of his parents’ views but as an extension of their
liberalism.
Always proud of his work for Woodrow Wilson, Lamont seemed to stand out
as the great exception, refuting, in Corliss’s words, the “stereotype of rich people
and Republicans as conservative or reactionary plutocrats opposed to all forms
of progress and liberalism.”18 Nor was this just a loving son’s bias; such
accolades tumbled in upon Lamont. To poet John Masefield, the Lamonts were
an exemplary couple, representing everything civilized: “Their political views,
national and international, were ever generous and liberal. They always seemed
to be in touch with the generous and the liberal of every country.”19 Even
General Smuts of South Africa told Lamont, “There is no doubt that your house
is an international meeting place, and an influence for good . . . second to none
in the world.”20
Why should they have thought otherwise? Reasonable and fond of discourse,
an engaging letter writer, Lamont lacked the smug conservatism of many on
AS
Wall Street. He was one of the major contributors to the League of Nations
Association and the Foreign Policy Association. For many years, he was
financial angel of the Saturday Review of Literature and knew poets ranging
from Robert Frost to Stephen Vincent Benét. He was that rare banker with an
appreciation for words, a zest for ideas. Because Lamont was a partner in a
mysterious, private bank, his admirers couldn’t compare his stated beliefs with
his business behavior. That he served as banker to Italy during its Fascist period
apparently didn’t faze them. They doubtless imagined that he kept a businesslike
distance from Mussolini and served his client with thinly disguised distaste.
But Lamont could do nothing halfway. As a Morgan man, he had to render
those thousand and one special touches that made a client feel pampered. As
with Pierpont, unvarnished banking lacked some final satisfaction for Lamont.
His elaborate letters and memorandums seem almost a substitute for the writing
career he never had. He always wanted to go beyond mere dollars and invest his
deals with some larger meaning. He tried to make loans a total experience, by
immersing himself in the politics and culture of client countries. In Italy, he
would meet with Mussolini one day, then picnic in the Roman campagna the
next. Despite the Fascist regime, he saw an Italy touched with poetry and
romance. As president of the Italy-America Society, he hosted meetings of its
Dante Committee at his East Seventieth Street townhouse and once screened a
Florentine film on Dante and Beatrice. At the office, he worked at a beautiful
Italian refectory table. Yes, his life would be all of a piece, a fusion of business
and pleasure.
The Morgan agent in Rome was Giovanni Fummi, whom Lamont had met at
the Paris Peace Conference. Fummi was a former stockbroker with an American
wife, a charming, extroverted man with a trim mustache and laughing eyes. He
lived well at the Hotel Excelsior and was tanned both summer and winter. He
was typical of the powerful but discreet lobbyists the bank employed in foreign
capitals. He was rich in contacts, both in the government and in the Vatican.
Lamont would boast of Fummi’s high standing with Mussolini yet insist he was
free of Fascist taint. Fummi was perhaps less a Fascist than a conformist willing
to sacrifice his principles for la dolce vita. He was an expert rationalizer and
even when faced with Italian atrocities would contend that criticism might only
polarize the Fascist party and bring more extreme elements to the fore. Funny,
charming, and sentimental, Fummi made a curious match with the cool, patrician
House of Morgan.
After the war, J. P. Morgan and Company sparred with Dillon, Read for
business with the Italian government. Lamont wanted an exclusive relationship,
as understood by the Gentleman Banker’s Code. In 1923, six months after taking
power, Mussolini first met with Lamont to discuss how to restore Italian credit.
Initially Wall Street viewed il Duce benignly, as the man who had saved striketorn Italy from Bolshevik hands. The Blackshirt terror that killed a hundred
people in the 1921 elections was conveniently overlooked. Traveling through
Italy, Jack Morgan reported to a friend, “We had the great satisfaction of seeing
Mr. Mussolini’s Revolution.”21 In the early days, Mussolini stuck to
conservative financial policies and kept flunkies from the key financial posts.
Italian financial policy was something of a showcase for the outer world.
During their fifteen-year relationship, Lamont and Mussolini would form an
implausible pair. Lamont was stylish and natty with wonderful manners, scores
of friends, and a refined sense of beauty. Mussolini was sloppy and unshaven, an
insecure, misanthropic loner with a mega-phonic voice and a black view of
human affairs. Their relationship had a Beauty and the Beast quality that hid one
likeness: both men were former journalists and newspaper owners and were
fascinated by the art of public relations. Both had the knack of giving a pretty
verbal gloss to ugly things, and much of their relationship revolved around the
manipulation of words.
Lamont didn’t start out an apologist for Mussolini. As usual, the path to
perdition comprised a series of small steps. In the summer of 1923, Italian troops
occupied the Greek island of Corfu, and their bombing of civilians outraged
world opinion. If the League of Nations thwarted him, Mussolini promised to
destroy it. Appalled, Lamont told Fummi, “I think you ought to know direct
from me that the action of Mr. Mussolini in the Grecian affair has given us all a
tremendous jolt here.” The fact of the occupation bothered Lamont less than the
manner: “There was no reason in the world why he shouldn’t have been able to
occupy it peacefully instead of shooting up and killing several innocent civilians,
including children.”22 The indignation wasn’t simply humanitarian, for Lamont
realized that Corfu would make impossible the financing he had discussed with
Mussolini the previous May.
The following year, Blackshirt violence intensified. Hundreds were murdered
or wounded during the rigged 1924 elections, scores of judges were later
dismissed, and Italian democracy was dismantled. Mussolini now controlled six
of the thirteen cabinet departments and the three armed services. For the first
time, a conflict arose between Lamont’s business commitment to Italy and the
humane indignation of some important friends, most notably Walter Lippmann,
who attacked the Corfu invasion in the New York World. When Lippmann
returned from Rome in 1924, he had dinner with Lamont and told him il Duce
needed these violent antics to stay in power. Lamont didn’t disagree.
How would Lamont deal with the growing strain between his liberalism and
his desire to expand Morgan business in Italy? He would paper it over with
words. He had a politician’s talent for speaking in different voices to different
people. He never exactly lied but shaded the truth and pretended to side with
everyone. Only Lamont was bright enough to keep all his stories straight and
wrap them up in outward consistency. After the dinner with Lippmann, he wrote
to Prince Gelasio Caetani, the Italian ambassador in Washington, about the chat:
“This all sounds to me like silly gossip; nevertheless I had to keep within bounds
because I was the host.”23 This was a more cynical voice than the one Lippmann
heard. Through nods, winks, and pats on the back, Lamont would keep everyone
happy.
A certain convenience of vision, a selective filtering out of details, began to
accompany the verbal touch-ups. Mussolini’s henchmen had now killed
Giacomo Matteotti, the regime’s eminent foe, causing Socialist deputies to
boycott Parliament. Yet when Lamont visited Italy in April 1925 to meet with
Mussolini, he seemed oblivious to these grisly developments. Bonaldo Stringher,
the governor of the Banca d’Italia, assured Lamont that il Duce resorted to
strong-arm tactics only when absolutely necessary. With Corliss, the Lamonts
motored through Italian hill towns and stopped by Bernard Berenson’s villa, I
Tatti, for tea and a chat about Italian Renaissance art. Afterward, Lamont wrote
this paean: “The Italy through which I traveled seemed to be industrious and
prosperous. The newspaper headlines in the New York and even London papers
seemed to me exaggerated. Everybody, both in and out of the Government,
laughed at these stories of street fights, unrest upsetting the Government etc.”24
Back at 23 Wall, Lamont received an autographed photograph from Mussolini,
which was now featured as prominently on his wall as the earlier picture of
Woodrow Wilson had been.
In reviewing Lamont’s files, one gets the impression that in 1925 he made a
moral leap and cast his lot with Mussolini. The year was rife with rumors,
encouraged by Lamont’s trip, of a $100-million Morgan emergency loan. In part,
Mussolini wanted Morgan money to rebuild Rome as a monument to his own
maniacal splendor. The new secretary of state, Frank Kellogg, made it clear that
no loan would be forthcoming unless Rome settled more than $2 billion in war
debts with Washington. In October 1925, Mussolini sent a mission to
Washington, headed by his finance minister, Count Giuseppe Volpi, to negotiate
the debt.
As the big $100-million loan hung in the balance, Lamont made his most
startling shift with Mussolini, one that went far beyond basic banking
requirements. This former champion of the League of Nations began to coach
the Italian dictator on how to appeal to Anglo-American opinion. He fed him
sugared phrases, language that would make reprehensible policies palatable
abroad. A modern man, Lamont knew that any product, if attractively packaged,
could be marketed to the public. The Italian problem was redefined as one of
public relations. After Mussolini suspended town councils and bullied
Parliament into passing 2,364 decrees at once, Lamont sent fresh publicity
angles to Fummi for il Duce’s consideration:
If Mr. Mussolini declares that parliamentary government is at an end in Italy
such a declaration comes as a shock to Anglo-Saxons. If, on the contrary, Mr.
Mussolini had explained that the old forms of parliamentary government in Italy
had proved futile and had led to inefficient government and chaos; therefore they
had to be temporarily suspended and generally reformed; then Anglo-Saxons
would understand.
Again, when Mr. Mussolini announces that the mayors of interior
cities will be appointed by the Fascista government, Anglo-Saxons jump to
the natural conclusion that such a step means that the interior cities are to be
deprived of all local self-government. If, at the time of such announcement,
Mr. Mussolini had explained that in most cases the mayors of the interior
cities were simply the appointees and tools of local deputies, and were
conducting the affairs of the municipalities so badly that, for the time being,
the central government had to intervene, then again such an explanation
would have seemed reasonable.25
In public appearances, Lamont tried to deflect attention from Mussolini’s
politics to his economic record. Wall Street enjoyed pretending that there were
two Mussolinis—the sound economic leader and the tough politician—who
could be treated separately. Mussolini spouted the predictable litany of promises
—balanced budgets, low inflation, and sound money—that bankers adored.
Resorting to sophistry, Lamont said he was only praising the Italian economy,
not Mussolini or fascism. In a January 1926 speech before the Foreign Policy
Association, Lamont extolled Italy’s record in lowering inflation, stopping
strikes, and reducing unemployment. He even endorsed Mussolini’s highway
and public works projects—measures that would be roundly denounced by
Morgan partners during the Roosevelt administration. Lamont’s trump card was
his claim that the Italians supported Mussolini: “At this gathering to-day, we all
count ourselves liberals, I suppose. Are we sure that we are liberal enough to be
willing for the Italian people to have the sort of government which they
apparently want?”26
Lamont’s efforts were crowned with success: in early 1926, Washington
reached a lenient settlement of Italy’s war debt, paving the way for a Morgan
operation. Treasury Secretary Andrew Mellon had already advised President
Coolidge that without a conciliatory debt settlement, Wall Street might lose the
Italian loan to Britain. So Coolidge was pleased when, a week later, Lamont
announced the $100-million Morgan loan. It triggered a vituperative debate in
Congress, with critics such as Representative Henry Rainey, Democrat of
Illinois, calling Mussolini a murderous dictator and protesting the favoritism
shown toward the Fascist regime. As with the Dawes Loan to Germany, the
Morgan loan to Italy proved a catalyst for further American investment. The
bank itself went on to provide loans to Rome and to two industrial clients, Fiat
and Pirelli. In December 1927, J. P. Morgan again joined with Ben Strong and
established a credit for the Banca d’Italia that permitted a return to the gold
standard.
On a Wall Street disturbed by European radicalism and worshipful of
economic progress, Lamont wasn’t the only Mussolini supporter. Jack Morgan
and George Whitney both hailed him as a great patriot. Otto Kahn of Kuhn,
Loeb likened his iron rule to that of a tough receiver straightening out a bankrupt
company. With a poetic flourish, Willis Booth of Guaranty Trust said Mussolini
lifted Italy “out of the slough of despair into the bright realm of promise.”27
Judge Elbert Gary of U.S. Steel and publicist Ivy Lee joined the fan club. As a
self-professed “missionary” for Mussolini, Lamont’s contribution was singular.
One scholar has noted, “Of all the American business leaders, the one who most
vigorously patronized the cause of Fascism was Thomas W. Lamont. . . . Though
not the most voluble business spokesman for the Italian government, Lamont
was clearly the most valuable. For it was he who translated verbal apologetics
into hard cash, securing for Mussolini a $100 million loan.”28
Was Lamont ignorant of events inside Italy? Not likely. As lender to sovereign
states, the bank maintained thick clipping files and received abundant
intelligence from around the world. (It was partly the excellence of Lamont’s
files that enabled him to keep abreast of an extraordinary range of clients.) In
January 1926, publicity man Martin Egan passed on to Lamont an anguished
letter from a friend in Anticoli, Italy:
I wonder if you all in New York know just what you are doing in backing
Fascistism in Italy. We had a taste of it last night here. A party of Fascists
motored up from Rome armed with revolvers, rapiers and loaded whips, arrived
at nine and proceeded to beat up with fierce brutality the peasants who could not
produce a Fascisti card. . . . If any peasant objects he is shot. This is happening
all over the place. It seems funny for American money to be perpetuating it.
On top of this, Lamont scribbled, “Pretty terrible, I must say.”29 In addition,
an Italian opposition leader reported to him how his house in Rome was
plundered by Blackshirts; he passed along a sheaf of bellicose speeches in which
Mussolini boasted of his readiness for war. These speeches occasionally upset
Lamont, but he always ended up recasting the problem as public relations.
At the same time, Lamont was plied with constant requests from a new Italian
ambassador, Giacomo de Martino, whom he used to put up at the University
Club in New York. Most of de Martino’s requests were for more sympathetic
press treatment of Mussolini. To this end, Lamont lined up favorable editorials in
the New York Sun, protested dispatches of an “anti-Fascist” correspondent in the
World, and arranged for de Martino to plead with Walter Lippmann at his home.
Mussolini took a personal interest in winning over Lippmann and even sent him
a personal photograph with a tribute to Lippmann’s “wisdom” scribbled across
it.30 (Lippmann worked in a penthouse under signed photos of the British
ambassador and Morgan partner Thomas Cochran.) Lippmann’s antagonism
toward Mussolini only deepened, however, confirmed by Italian press
censorship, which he saw as symptomatic of weakness. “As long as the
censorship lasts, I shall remain persuaded that the Mussolini Government is not
certain of its hold on the Italian people,” he told Lamont. “If the opposition to it
inside of Italy were as negligible as Fascists like the Ambassador make out, there
would be no occasion for a censorship of this character.”31
Mussolini stamped out all press freedoms in Italy. He was so preoccupied by
his image that he would examine in advance front-page layouts of national
newspapers. By 1930, half of his ministers were recruited from the press corps,
and he decreed that all journalists be Fascists. Dissenting editors were jailed, and
many foreign journalists were mugged by street toughs. Hence, Mussolini’s only
fear of press exposure was from abroad.
At the time of the $100-million loan, Lamont and Martin Egan convinced
Ambassador de Martino to suggest an American press service to Mussolini. Its
purpose, Lamont said, would be to “acquaint our financial community more
faithfully with the proper situation in Italy.”32 Mussolini was excited by the idea,
and the secret operation went into effect in 1927. Paid for by Italy, it would write
up favorable press releases and bring over speakers. There was some difficulty in
finding an appropriate American journalist to head the operation. The first
choice was Associated Press correspondent Percy Winner, who once wrote of
Mussolini, “An artist in the use of millions of human beings as tools and a nation
as a canvas, the Duce rises so far above the typical politician or even dictator as
to defy definition.”33 Even de Martino was relieved when Winner’s name was
dropped for a less slavish admirer. Early preparations for the press bureau were
cleared with Lamont, and it eventually operated under the aegis of his ItalyAmerica Society.
How did Lamont, a Woodrow Wilson protege, end up an accomplice of Benito
Mussolini? The answer is partly personal. He had a romantic attachment to Italy
and a proprietary feeling toward the Italian account, which he had won. His
training as a Morgan banker taught him to transcend the mundane and to move
mountains for important clients. This personal approach to business suited him,
for he had varied and contradictory ambitions. He yearned to be a sleuth, a
statesman, a political fixer, and a bon vivant. He loved politics, not so much as
an ideological contest, but for the intrigue and the high-stakes gambling with
fate. As a result, he could cooperate with politicians of many stripes.
Washington’s tacit support for Italian loans perhaps also removed any inhibitions
that might otherwise have existed.
Lamont’s Italian adventure exposed other problems. The highly intimate style
of “relationship banking” meant that bankers came to share their clients’ interests
and identify with them. They felt almost too responsible for the success of their
issues. As Lamont once said, when the House of Morgan undertook to market a
block of common shares, it assumed responsibility, not simply for the solvency
of the corporation involved but for its brilliant, successful management. This
was the old London tradition upheld by Pierpont in dealing with bankrupt,
profligate railroads. Now that tradition was being transposed into a policy of
backing dictators whose bonds were floated by the House of Morgan. Although
lending to sovereign states had political overtones and moral imperatives quite
absent from conventional business banking, the style of “relationship banking”
was transferred intact.
There was another factor of paramount importance in Morgan’s growing
involvement in Italy—the Vatican. Earlier, Pope Pius X had grown wistful and
regretted not having requested investment tips from Pierpont. This papal prayer
was belatedly answered in the late 1920s, during the reign of Pius XI. The new
relationship owed something to the friendship between Jack Morgan and the
pope. In his earlier incarnation as Monsignor Ratti, prefect of the Vatican
Library, the pope had restored the Morgan collection of sixty Coptic texts dug up
from an old stone well in an Egyptian monastery. As an expert on early Christian
documents, he had hardened the parchments until they became legible. The task
consumed twelve years before the texts were finally returned to the Pierpont
Morgan Library.
Even more important to the future Morgan relationship with the Vatican was
the 1929 Lateran Treaty, which resolved a fifty-eight-year dispute between Italy
and the papacy. Back in 1871, Italy had taken control of the Papal States, which
included much of southern Italy and had provided the Vatican with enormous
revenues. In 1929, Mussolini not only recognized the Vatican’s sovereignty but
paid almost $90 million in compensation for the seized lands. This vast sum was
paid in the form of Italian treasury bonds worth 1.5 billion lira.
Before this, the Vatican had managed money in a conservative and rather
primitive way. At the turn of the century, Pope Leo XIII had simply filled a trunk
with gold coins and stored it under his bed. But with his good Milanese business
head, Pius XI wanted to manage the Vatican’s assets in a modern, secular
manner. On June 2, 1929, he met with Bernardino Nogara of the Banca
Commerciale Italiana, one of the rare meetings in papal history not recorded on
the Vatican calendar. Nogara was not only a highly experienced banker but had
so many priests and nuns among his siblings as to make him an acceptable
layman for confidential Vatican work.
The Pope asked Nogara to create the Special Administration of the Holy See
and convert the Italian treasury bonds into a diversified stock portfolio. The
operation was so secret that only one report was produced each year. Nogara
would hand-deliver it to the pope, who would inspect it and then place it in his
personal safe. Pius XI put no restrictions on Nogara’s investments, and the
banker was given full power to invest in stocks, gold, and real estate and even
take equity stakes in different companies. Nogara decided to select the best
investment advisers in a number of foreign financial centers and was perhaps
swayed by his friendship with Giovanni Fummi. In New York, he chose J. P.
Morgan and Company; in London, Morgan Grenfell; in Paris, Morgan et
Compagnie (the new name given to the Paris house in the late 1920s); in
Holland, Mees and Hope; in Sweden, the Wallenbergs’ Enskilda Bank of
Stockholm; and the Union Bank of Switzerland.
The Vatican would be very grateful for the investment advice provided by the
House of Morgan. Jack Morgan, who had once lobbied to keep a Catholic off the
Harvard board, would become a favorite in Vatican City. For investment advice,
Pope Pius XI would confer upon both Jack and Tom Lamont the Grand Cross of
Saint Gregory the Great. As an account of both Morgan Grenfell’s and J. P.
Morgan’s, the Vatican is an important explanation of some of the alacrity with
which Lamont performed services for Mussolini. After all, the devil’s work was
now sprinkled with holy water.
CHAPTER FIFTEEN
SAINT
DWIGHT Whitney Morrow vied with Tom Lamont for honors as the chief
Morgan statesman and theoretician. His twenties celebrity owed much to his
friendship with the president. When Coolidge took office, reporters flocked to
Morrow for comments and speculated on which high post he would occupy. The
two had been close friends in Amherst’s class of 1895, boarding together for a
year. They both remembered the day when they sat on a hilltop and fantasized
about their future. According to legend, in their senior class everybody voted
Morrow the Most Likely to Succeed—except Morrow, who voted for Coolidge.
“Coolidge in college was a quiet, unassuming man,” Morrow later said, and he
was one of the few to penetrate the president’s reserve.1
As a student of ancient civilizations, Morrow wanted to clothe the mundane,
often sordid world of the twenties in some larger classical dimension.
Spearheading the Amherst College Coolidge-for-President Committee in 1920,
Morrow viewed his old friend in grandiose terms: “Coolidge is a very unusual
man and a strange combination of a transcendental philosopher and a practical
politician.”2 With similar hyperbole, Morrow confided to Lamont, “I think it is a
miracle that a man of Coolidge’s type has been produced for this emergency.”3
Coolidge talked of Morrow no less reverently. Morrow had been a brilliant
student, Coolidge said, but without the usual bookworm qualities. “While he was
. . . friendly and sympathetic, he was always dignified. . . . He had no element of
selfishness. He never strove to excel anyone or defeat anyone.”4
One suspects that Coolidge cleverly presented Morrow with the scholarly
image the latter wanted to see. During the 1920 presidential race, Morrow sent
four volumes by the Yale economist William Graham Sumner to Coolidge, who
replied, implausibly, from the campaign trail that he had almost finished all four!
“I regard his arguments on the whole as sound,” Coolidge said, but added, “I do
not think that human existence is quite so much on the basis of dollars and cents
as he puts it.”5 Coolidge, as they say, had Morrow’s number. While Morrow
addressed him as “Dear Calvin,” Coolidge usually responded with “Mr.
Morrow,” as if he were writing not to an old school pal but to an elderly sage.
Along with Lamont and Russell Leffingwell, Morrow gave the House of
Morgan its patina of culture, its reputation as a home to bankers who wrote
essays, gave speeches, joined foreign policy councils, and served on foundation
boards. He belonged to a 1920s cult that believed in the wisdom of businessmen
as managers of America’s political affairs. Witty, bristling with ideas, the pintsized Morrow had a professorial air. With penetrating blue eyes and a faraway
look, he wore pince-nez and baggy trousers and never fit into the foppish
Morgan world. The bank used to post a page at the men’s room door just to
remind him to pull up his suspenders when he left. Attending the wedding of
Harry Davison’s daughter, he smelled so badly of mothballs that the other
partners made him don a fur coat to mask the odor. His sartorial deficiencies, it
seems, symbolized a deeper unease in the posh Morgan world of tall, rich, selfconfident men.
Like many bright, obsessive people, Morrow was notoriously absentminded.
He once spent a dinner at the Lamonts gesturing with a partially eaten olive until
Metcalf, the Lamont butler, offered a plate for the well-chewed pit. Everybody at
J. P. Morgan told the story about Morrow’s riding the train. When the conductor
asked for his ticket, Dwight couldn’t find it and with his hands restlessly
searched every pocket. The ticket, it seems, was clenched between his teeth. “I
bet you thought I didn’t know it was there,” Morrow said to the conductor.
“Actually, I was just chewing off the date.” Once, while taking a bath, he called
out to his valet for soap that lathered better; the problem turned out to be not the
soap but that he was still wearing his pajamas.
Like Lamont, Morrow craved something finer than mere banking. He
professed ignorance of the business’s technical side and styled himself “a lawyer
in a banking firm.”6 A banker of the Diplomatic Age, he was as much at home in
Washington as on Wall Street. He clung to his intellectual ambitions, reading
Bryce and Thucydides and writing essays, studded with recondite references, in
favor of the League of Nations. He plied Coolidge with books such as Hallam’s
Constitutional History of England. What makes Morrow’s story unique in
Morgan annals is that he never entirely renounced his youthful goals or political
ambitions and saw his partnership as a springboard.
There is pathos in Dwight Morrow’s journey from a poor Pittsburgh home to
the summit of world finance, and the story of his boyhood makes for
uncomfortable reading. His father was a high-school principal and supported the
family with difficulty. Pale and sickly, Dwight inherited both his father’s
reverence for education and his fear of poverty. After he graduated from high
school, at fourteen, he worked as an errand boy for four years until he was old
enough to go to college. He attended Amherst with the aid of a student loan and
wore hand-me-down shirts given him by Jacob Schiff’s son Mortimer. To make
ends meet, he tutored other students. He practiced such austerity that he shared a
pipe with a roommate to save money. After graduating from Columbia Law
School, he landed a job at the Wall Street firm of Reed, Simpson, Thacher, and
Barnum, which specialized in utility law. Within seven years he was a partner in
the firm, now called Simpson, Thacher, and Bartlett. Living in Englewood, New
Jersey, he locked umbrellas with Harry Davison in the rain one day and
befriended Tom Lamont along the way. The two Morgan partners recruited him
in 1914.
To become a Morgan partner was then a national event, and Morrow’s mother
was mobbed by well-wishers in the Pittsburgh streets. But after his first day,
Dwight admitted to his wife, Betty, that he felt “pretty lonely and blue all day.”
To a friend he confessed that he felt “like a cat in a strange garret.”7 This was
partly beginner’s jitters, but the uneasiness never entirely deserted him.
Morrow performed spectacularly at 23 Wall and mastered every subject
through sheer diligence. He mutualized the Equitable Life Assurance Society
and oversaw Morgan lending to Cuba. He also masterminded Kennecott Copper,
a public company formed around the Morgan-Guggenheim syndicate in Alaska
and other properties. Daniel Guggenheim was awed by Morrow’s retentive brain
and said that “six months after Morrow had started upon his investigation, he
knew more about copper than I or any of my six brothers.”8 In his absentminded
way, however, Dwight neglected one detail of the Kennecott operation: “You
have forgotten to provide for our commission,” Davison gently chided him.9
Morrow was always torn between idealism and materialism. One life couldn’t
encompass his dreams, and he was tormented and made extremely nervous by
the choices he faced. He and his wife traveled in monied circles and were
frequent guests of Pierre du Pont at Longwood in Pennsylvania, with its
fountains, conservatories, and ten-thousand-pipe organ. Yet they felt misplaced
in this rich world. While still at Simpson, Thacher, Dwight would have pangs of
Puritan guilt and say, “This, Betsey, is not the life for you or me.”10 Together
they daydreamed of how they would save up $100,000, and Dwight would then
teach history and Betty write poetry—Betty Morrow was a Smith graduate and a
poet whose work appeared in Harper’s and Scribner’s Magazine. They could
never acknowledge their overpowering ambition.
Morrow’s conflicts gnawed at him even in his sleep. One night, he bolted up
in terror from a nightmare. “I dreamt, Betsey, that we had become rich,” he
explained. “But enormously rich.”11 Offered a Morgan partnership, he went
through “weeks of acute spiritual crisis,” according to his biographer, Sir Harold
Nicolson. While pondering his choice in Bermuda, Morrow saw a malicious
cartoon that showed a vulturelike Jack Morgan feasting upon the innards of New
Haven shareholders. This libel persuaded him to take the Morgan job, he said,
and the bank’s defense of its New Haven financing was his first assignment.
Morrow used lofty rhetoric to justify actions prompted by lesser motives. After
accepting the Morgan partnership, he told an old Amherst professor that service
—not the prospect of a $ 1-million-a-year income—drew him to the House of
Morgan.
Morrow always flirted with the idea of retreating to the cloistered university
world. He spent so much time on Amherst matters that Jack Morgan reportedly
said one day, “Dwight, if you will get off that Amherst Board of Trustees I’ll
make a present of a hundred thousand dollars.”12 In 1921, his bluff was called:
he was approached with a tentative offer to become president of Yale. He turned
it down, saying he wasn’t a Yale alumnus and lacked special training. The
excuse was flimsy, and for months afterward Dwight was depressed. Amherst
and the University of Chicago also pursued him in vain.
Morrow’s real passion was politics. He balked at the Morgan partnership lest
it prove a political handicap—an accurate fear, as it turned out. The British press
baron Lord Beaverbrook once told him that if he were an Englishman, he would
already be a cabinet minister. The remark haunted and distressed him.13 At first,
Calvin Coolidge’s election seemed a godsend, and Morrow was touted for
Treasury secretary and other positions that never materialized. “My mother was
upset and felt rather bitterly about it,” said his daughter. “She felt that my father
didn’t ask for things.”14 Morrow used to tell his children to obey “Rule 6—Don’t
take yourself too seriously!”15 Yet the Morrows took every setback in earnest.
One suspects that Coolidge kept a self-protective distance from Morrow.
“Ever since Mr. Coolidge became President Mr. Morrow has, of course, been a
frequent guest at the White House,” wrote Ivy Lee, who was a publicity
consultant for the Morgan bank as well as for the Rockefellers. “It is an open
secret that the President has consulted with him on numerous occasions.”16
Harold Nicolson, by contrast, claimed that Coolidge telephoned Morrow only
once between 1923 and 1929. Morrow’s files suggest that the truth lay in
between, with Nicolson’s comment nearer the mark. Coolidge had wanted to
make Morrow, not Parker Gilbert, agent general for Germany and only
capitulated after warnings from the U.S. ambassador to Germany. Clearly, some
Coolidge advisers feared the stigma of associating with a Morgan partner.
Perhaps to soften up public opinion for an appointment, Coolidge assigned
Morrow in 1925 to chair a board studying the application of airplanes to national
defense. Coolidge first mentioned it in a letter to Morrow a few days after his
1925 inauguration, but Morrow learned about it officially from the Sunday
papers that September. The Morrow board drew up plans for army and navy use
of airplanes. In 1925, Daniel and Harry Guggenheim—old friends of Dwight’s
from his Kennecott Copper days—set up a special $3-million fund to advance
aviation. Through Morrow, they got Coolidge to accept the money on behalf of
the government to speed up airplane development.
Through his stint on the Aviation Board, Dwight Morrow became friends with
the young Charles Lindbergh. In fact, Morrow’s files show that the Morgan
partners ended up paying for Lindbergh’s historic flight to Paris aboard The
Spirit of St. Louis. Under the original scheme, Lindbergh had planned to compete
for the $25,000 Orteig Prize, set up to reward the first nonstop flight between
New York and Paris. The trip was thus supposed to be self-financing. Lindbergh
contributed $2,000, and a number of other Saint Louis sponsors added $1,000 or
$500 apiece. Altogether, they raised $8,500 in subscriptions against a loan of
$15,000 from a Saint Louis bank. Then, in his rush to be first across the Atlantic,
Lindbergh decided that he couldn’t afford certain delays demanded by the Orteig
Prize and so forfeited his chance. In June 1927, one St. Louis sponsor, broker
Harry F. Knight, told Morrow that the historic flight had actually cost between
$16,000 and $17,000. The Morgan partners pitched in $10,500, not only
repaying the bank loan, but permitting Lindbergh to retrieve his own $2,000
investment.
When Lindbergh made a triumphant trip to Washington, Coolidge invited him
to stay as his guest at the temporary White House on Du Pont Circle. The
president saw that Lindbergh’s celebrity would make him a major force in the
budding airline industry and so he invited the Morrows as guests as well.
Morrow and Lindbergh liked each other immediately. As a trustee of the Daniel
Guggenheim Foundation for the Promotion of Aeronautics, Morrow steered
Lindbergh to Harry Guggenheim, who sponsored Lindbergh’s three-month tour
in The Spirit of St. Louis. And Morrow became Lindbergh’s personal financial
adviser.
While the Morrows were staying at the temporary White House, Coolidge
sounded out Dwight about becoming ambassador to Mexico. Dwight had been
restless at 23 Wall and apparently told Coolidge of his willingness to leave. The
offer of the ambassadorship was formalized a month later. This position wasn’t
just a bone tossed belatedly to an old friend, but an extremely sensitive
appointment. As Coolidge later said, “It would be difficult to imagine a harder
assignment. But Mr. Morrow never had any taste for sham battle.”17
American Catholics and oilmen were agitating to break diplomatic relations
with Mexico, and some called for a military invasion. Secretary of State Kellogg
had already condemned the regime of President Plutarco Elias Calles as a
“Bolshevik threat.”18 In American eyes, Mexico had committed multiple sins. It
had nationalized church property and closed Catholic schools, defaulted on
foreign debt, insisted that oil companies trade in property titles for government
concessions, and confiscated American-owned land without compensation.
Newspapers were calling Mexico America’s foremost foreign-policy problem.
The Morrow appointment was an inspired choice. Coolidge was under
pressure to do something dramatic, and he did it. Walter Lippmann hailed it as
the “most extraordinary appointment made in recent years” and helped to
shepherd it through the Senate Foreign Relations Committee.19 As a specialist in
Latin American loans and an opponent of dollar diplomacy, Morrow had
moderated Wall Street’s often truculent attitude toward Latin American debtors.
When Cuba threatened to default on foreign bonds during the 1921 sugar
debacle that nearly collapsed Guaranty Trust, Morrow was credited with keeping
out the marines. “Is there any one who thinks that if a man owes him money and
cannot pay it, there is profit in going out and killing him?” he wrote.20 Morrow
favored diplomacy over armed intervention, an enlightened attitude for the time.
Betty Morrow expressed both elation and bitterness at the appointment. The
Morrows had just decided to build a new home in Englewood, and she didn’t
want their lives disrupted. She didn’t see Coolidge as a transcendental
philosopher: “The blow has fallen! President Coolidge wrote to Dwight today
asking him to be Ambassador to Mexico and Dwight is going to do it. It is a hard
job, and not much honor, and it comes late. . . . Coolidge won’t run again, but
Dwight goes and does a hard job for him when there is no chance of reward.
How characteristic!21 Betty sarcastically told friends that Coolidge was like a
father who had given away valuable gifts and thrown Dwight a little tin whistle
at the end.
Morrow was sufficiently pessimistic about Mexico to say privately that the
best he could do was get Mexico off the front page. Lamont advised him against
taking the post, saying the turmoil of a pending presidential campaign made it an
inauspicious time for action. Friends concurred and were aghast that Dwight
would surrender a Morgan partnership for such a risky position. Even Lindbergh
was dubious: “From what little I have seen at our border stops, I am afraid that
the position will be a difficult one.”22
The Mexicans were also wary of Morrow, believing he would function as a
collection agent for the New York banks. They chanted, “First Morrow, then the
marines.” The fear was unjustified. The Lamont-led bankers’ committee for
Mexico was less interested in military action than in peaceful negotiations to get
Mexico to resume debt repayment. They wanted stability, not further turmoil, in
Mexico. In the end, it would be the Mexicans who would be pleasantly surprised
by Dwight Morrow and the House of Morgan that would feel embittered and
betrayed.
ambassador to Mexico, Dwight Morrow patented a new style for a gringo
emissary in Latin America—warm and voluble, treating Mexicans as peers, not
wayward children. Soon after his arrival, he told the local U.S. Chamber of
Commerce that it should respect Mexican sovereignty. (With slight
embarrassment, he had to write the White House and ask for a photograph of
Coolidge to hang above his desk—another telltale sign of the distance between
the two.) Morrow developed a close rapport with President Calles and would
casually drop in on him, like an old friend. They would breakfast at Calles’s
ranch or tour Mexican dams and irrigation works together. Morrow’s friendly,
trusting manner contrasted with that of his predecessor, James R. Sheffield, who
had treated nonwhites patronizingly, taken a pro-invasion stand toward Mexico,
and studiously served the interests of American oil companies.
Morrow not only respected Mexican culture but liked the easygoing
informality of the people. He and Betty spent weekends at Casa Mafiaña, a villa
in the semitropical town of Cuernavaca. It overlooked two volcanoes and
overflowed with Mexican pottery and Indian handicrafts. Morrow commissioned
Diego Rivera, the left-wing Mexican muralist, to paint frescoes at the Cortes
Palace, including one that depicted the revolutionist Zapata. To improve U.S.Mexican relations, he even brought down Will Rogers to tour with him and
Calles. While Rogers was there, Morrow threw a banquet complete with
Mexican songs and dance. At one point, the ebullient Morrow said to Rogers
with a smile, “Imagine going to war with a people like this!”23
Sometimes Morrow seemed more popular among Mexicans than in the
American colony. The public debate about Mexico in the United States became
more inflammatory in late 1927. William Randolph Hearst nursed a grudge
against President Calles after the latter appropriated sections of his gigantic
Babicora Ranch. That November, the Hearst newspapers ran sensational articles
purportedly showing Mexican plots against the United States. Some observers
thought Hearst was not only expressing pique against Calles but was deliberately
fomenting trouble for Dwight Morrow; the isolationist Hearst had always
disliked the Anglophile House of Morgan. On December 9, 1927, the twenty-six
Hearst papers published documents that supposedly outlined a Mexican plot to
AS
bribe four U.S. senators with over $1 million. These documents were later
exposed as forgeries, but in the meantime they damaged relations with Mexico.
leaving for Mexico, Morrow had invited Charles Lindbergh to his
East Sixty-sixth Street apartment. Acting on a suggestion from Walter
Lippmann, Morrow proposed that the young aviator pilot The Spirit of St. Louis
to Mexico as a goodwill gesture. Lindbergh liked the idea. He had flown to Paris
on a spring day, and before donating his plane to a museum, he wanted to prove
the practicality of night and winter flights. To strengthen the political message,
Lindbergh suggested a flight linking Washington and Mexico City.
So on December 14, 1927, with rifle, machete, and tropical medicine on
board, Lindbergh took off through stormy night skies. It was a few days after the
Hearst “expose” and a perilous moment in U.S.-Mexican relations. When the sun
rose the next morning, Lindbergh sailed through a cloudless Mexican morning
but couldn’t figure out where he was. He dipped low enough to read the names
of a hotel and train stations and briefly thought all Mexican towns were named
Caballeros, because he kept seeing that sign at the stations. Then he spotted a
sign for Toluca, a town about fifty miles from Mexico City.
Sharing picnic sandwiches and lemonade, Morrow and President Calles
awaited Lindbergh in sweltering heat at Valbuena Airport, where a special
grandstand was set up for dignitaries. Morrow nervously paced up and down.
When Lindbergh landed—six hours late—a crowd of Mexicans estimated at
150,000 rushed exuberantly across the field. As Lindbergh accompanied Morrow
and Calles to their car, they were thronged by shouting, delirious spectators.
They rode to the embassy in triumph, horns blaring, horses rearing, and crowds
posted “on trees, on telegraph poles, tops of cars, roofs, even the towers of the
Cathedral,” as Betty Morrow recalled. “Flowers and confetti were flung every
moment.”24
Lindbergh spent Christmas at the embassy with the Morrows and took Calles
on his first plane ride. He also took notice of Dwight’s daughter, Anne, on
vacation from her senior year at Smith College. She was a shy, pretty poetess, as
slight of build as Charles was rangy and with Betty’s heavy eyebrows. Lindbergh
liked the fact that when he first sat next to her, she didn’t ask any questions.
Theirs was the strong bond of two shy people who had found each other.
Morrow hadn’t especially liked the young men his daughters dated—Anne
and Elisabeth having gone out with Corliss Lamont, among others. He approved
of Charles Lindbergh as a “nice clean boy” who didn’t drink, smoke, or see
girls.25 But when Anne announced that she and Charles wanted to get married,
BEFORE
Morrow seemed flabbergasted. “He’s going to marry Anne? What do we know
about this young man?” he asked.26 He insisted they be engaged first and get to
know each other better. Despite his flustered reaction, Morrow was very fond of
Charles and would beam with gee-whiz delight when he narrated his aviation
adventures.
On May 27, 1929, Anne and Charles were married at the Morrows’ new
Georgian mansion in Englewood, called Next Day Hill. It was an event of such
fascination worldwide that the Morrows had to fool the press and bill it as a
prewedding party. Even the guests were told only to drop by for lunch and a
bridge game. Then Anne suddenly appeared in a white chiffon wedding gown,
and a brisk ceremony took place. Only after Anne and Charles had changed
clothes and escaped through the back door did Dwight and Betty broadcast the
news to reporters. The young couple briefly stayed at the Leffingwell house in
Oyster Bay during their secretive honeymoon, and the servants were threatened
with dismissal if they mentioned the couple’s presence to tradespeople in town.
It was a strong, intense match but one riddled with contradictions. Anne was
the daughter of a former Morgan partner and had imbibed her father’s idealism
and internationalism. Charles’s father, who had died in 1924, was the populist
Minnesota congressman who had instigated the Pujo hearings, fulminated
against the Money Trust and the Morgan cabal with the Federal Reserve Bank,
and castigated the bankers who dragged America into the war. The
congressman’s son inherited his father’s suspicion of eastern bankers and would
never entirely slough it off. In the late 1930s, his isolationism would place him at
odds with the House of Morgan and create a painful dilemma for Anne. But in
the late 1920s, he socialized with the Morrows and Guggenheims and thrilled the
Davisons by taking their beach-party guests at Peacock Point for seaplane rides.
who saw Ambassador Morrow as a proxy for the House of Morgan in
Mexico were in for a rude shock. The ambassador already had a separate
political agenda, Morrow having confided to Walter Lippmann that he coveted a
seat in the U.S. Senate. Hence, he needed to distance himself from the bank.
During the 1928 presidential campaign, he was already being toasted as a
potential senatorial candidate at Republican dinners. It was now in Morrow’s
political interest to function as a sensitive, fair-minded arbiter in settling
Mexican disputes.
Morrow had quick success with the long-running oil controversy. He
developed an ingenious scheme of “perpetual concessions” for American oil
companies. It gave them new concessions on pre-1917 wells, while Mexico
THOSE
saved face and retained theoretical ownership. This rational statesmanship
delighted Walter Lippmann, who told Morrow afterward, “There is a disposition
in some quarters to ascribe it to some kind of private magic which you have at
your disposal.”27 For Lippmann, Morrow qualified as the most talented public
man of his generation, far beyond the common run of politicians.
Another major dispute involved the Catholic church. Calles had tried to
nationalize church lands, and the violent Cristeros movement had arisen in
protest. A state of war existed in parts of Mexico, with thousands of men
marching under the church’s banner. Morrow smuggled Walter Lippmann into
the country on a secret diplomatic mission. They negotiated a compromise under
which Calles agreed not to interfere with the church while Mexican priests
agreed to call off their protest strike. Morrow and Lippmann sold the deal to the
Vatican, and the settlement reopened the churches. One morning in Cuernavaca,
Betty and Dwight were awakened by the ringing of church bells. “Betty, I have
opened the churches,” Dwight said, laughing. “Now perhaps you will wish me to
close them again.”28
The most frustrating area for Morrow was, ironically, the foreign debt. By
1928, Mexico had been in default for fourteen years, and its budgetary situation
worsened with the lower oil revenues. In a desperate mood, bankers didn’t see
how Mexico could satisfy all its creditors. The country owed money to the
foreign bondholders represented by Lamont as well as to western U.S. railroads
and domestic lenders. Lamont thought the two hundred thousand bondholders he
represented should have first claim. He argued that they had patiently waited
many years for payment. Morrow, in contrast, favored a comprehensive
settlement for all creditors, on the model of a bankruptcy settlement. He feared
that if Mexico struck a series of separate deals, it would promise more money
than it could deliver. To Lamont, the notion of one big settlement was an
impractical dream that would only penalize his bondholders. And it would be so
cumbersome that nobody would ever get paid.
A heated feud arose between Morrow and Lamont. Although he would never
admit it, Lamont had secret reservations about Morrow. He would later eulogize
him as “sparkling, brilliant, whimsical, lovable,” yet he thought Morrow had an
unearned reputation for sainthood. There was perhaps envy here, a feeling that
Morrow threatened his own image as the leading liberal banker. Posing as
Morrow’s friend, Lamont gave Harold Nicolson a 125-page critique of a draft of
Nicolson’s biography of Morrow and reproached him for idealizing his subject.
Morrow and Lamont were perhaps too much alike to be completely fooled by
one another. Each was more worldly and ambitious than he cared to admit.
It’s hard to know whether Lamont found Morrow’s position on Mexican debt
a political ploy to separate himself from 23 Wall or a quixotic plan that only an
absentminded professor could espouse. In any event, by 1929 Lamont decided to
break with the Morrow-inspired State Department plan for a comprehensive debt
settlement. He circulated bitter memos at 23 Wall Street, sarcastically referring
to Morrow as the ambassador. The ICBM, he warned, “will be by no means
content to stand by idly for a year while the ambassador is perfecting his
Government claims.” A few days later, Lamont informed his partners that he
planned to cut a separate bargain with Mexico “despite Ambassador’s
attitude.”29 George Rublee, the legal adviser to the U.S. embassy in Mexico and
a close friend of Morrow’s, later said, “Mr. Lamont would rather take his
chances and get what he could ahead of somebody else than to cooperate in a
general settlement.”30
For all his charm, Lamont could play rough when crossed. He tried to figure
out an elegant way to get rid of Morrow while appearing to help him. In
November 1929, he had Martin Egan hand a letter to President Hoover that
recommended Morrow as secretary of war. Lamont stressed that Morrow knew
nothing of the request—implying that Hoover should keep the suggestion
confidential. He doubted his stratagem would work, however, owing to Hoover’s
insecurity in the face of Morrow’s massive intellect. “Dwight was so brilliant
that he would talk around [the president] in circles,” Lamont said.31 Hoover had
already rebuffed an earlier request from Calvin Coolidge to appoint Morrow as
his secretary of state. Hoover didn’t rise to Lamont’s bait. Close to Morrow—
they spoke several times weekly—the president wasn’t eager to advance a
potential political competitor.
That month, two events made Lamont’s exertions unnecessary. On November
12, Hoover appointed Morrow to represent the United States at the upcoming
Naval Conference in London. Later in the month, New Jersey governor Larson
asked Morrow if he would fill the brief time remaining in the unexpired term of
Senator Walter E. Edge, who had just been appointed ambassador to France. A
deal was struck whereby David Baird would occupy the Senate seat with the
understanding that he would step aside if Morrow wanted to campaign for the
Republican nomination in the spring. This provided Morrow with further
incentives to oppose Lamont on the debt issue and eliminate his former Morgan
partnership as a potential campaign issue.
In December, the simmering political dispute between Morrow and Lamont
boiled over. By this point, Morrow, the liberal do-gooder, had moved into the
position of self-appointed overlord of Mexico’s finances. The man who had held
back the marines now minutely reviewed Mexico’s budget. When Lamont’s
assistant, Vernon Munroe, met with Morrow, he was shocked by the extent to
which the ambassador wanted to dictate Mexican financial policy. According to
Munroe, Morrow wanted to cut the Mexican budget by “eliminating the
courthouse entirely, cutting 2.5 million off the education appropriation, one
million pesos off the public health, 2.5 million pesos off statistics and some 4
million pesos off communications.”32 Under the guise of helping his Mexican
brothers, Dwight seemed to succumb to delusions of grandeur.
During the May-June campaign for the Republican Senate nomination in New
Jersey, Morrow was still serving as Mexican ambassador, and as such he
followed the debt situation. Then a campaign blunder drastically reduced his
influence in that post. While he was at the London Naval Conference, his
military attache in Mexico, Colonel Alexander J. MacNab, made a speech in
which he extravagantly praised Morrow’s role in Mexican reform. He actually
made Lamont’s point—that Morrow was intruding more in Mexican domestic
affairs than any Wall Street banker. “There is no department of government in
Mexico which he has not advised and directed,” MacNab said of Morrow. “He
took the Secretary of Finance under his wing and taught him finance.”33 The
Mexican press treated the speech as a scandal. It made Mexican officials look as
if they were the ambassador’s puppets, and Morrow never again had the same
influence in Mexico. Nevertheless, he won the Republican nomination.
During the summer of 1930, Morrow kept flying down to Mexico to advise on
the debt. The Morrow-Lamont dispute resulted in some blistering exchanges.
Morrow kept urging Lamont to lecture the finance minister about the growing
Mexican budget; Lamont did this, then regretted it. In a July 24 letter, his pentup contempt for Morrow surfaced: “I have a feeling that you are a bit disgusted
with our mental processes up here and are genuinely upset that we are unable to
adopt in toto your point of view.” He referred to a talk with the finance minister:
“He retorted by telling me politely that it was really none of my business. . . .
Now, my dear Dwight, you may have some means of compelling the Finance
Minister to give you precise information as to his budget plans for several years
ahead, but I must confess that in any such effort I, myself, am powerless.” In the
end, Lamont bluntly warned Morrow to stay away from his debt settlement with
Mexico: “I hope you can see your way clear to letting the matter rest where it is
rather than feeling called upon to defeat this plan.”34 In a cool reply, Morrow
repeated that Mexico was bankrupt and should treat creditors equally. He warned
Lamont that if he persisted in his course, he would ultimately have to deal with
the State Department.35
The day after Lamont wrote Morrow—without awaiting a reply—he signed a
separate accord at 23 Wall with a representative of Mexico’s Chamber of
Commerce. It nearly halved Mexico’s debt, reducing it from $508 million to
$267 million, in one stroke. True to his threats, Morrow advised Mexico to delay
ratification, but his influence with President Pascual Ortiz Rubio, Calles’s
successor, was much diminished. As it turned out, the feud between the two
Morgan men was for naught. Mexico kept postponing the date of debt
repayment, and the whole farce would collapse by 1932. The outcome would
have been laughable had it not consumed so much of Lamont’s life and
impoverished small Mexican bondholders. By 1941, Mexican debt had shrunk to
$49.6 million, or a tenth of the original amount.
Although Morrow’s break with the House of Morgan was now complete, the
association haunted him in the Senate race that fall. As one New Jersey paper
described his opponent’s strategy: “The Ambassador was to be pictured to New
Jersey voters as the tool and puppet of Big Business interests, and his candidacy
as a Wall Street conspiracy to capture the Presidency via the U.S. Senate
route.”36
Morrow was exhausted and dispirited. He suffered from insomnia and
headaches and ran a lackluster campaign. Nicolson suggests he had a serious
drinking problem. Coincidentally, Prohibition became a central topic in the
campaign. Not ducking the issue, Morrow became the first federal official to
favor outright repeal of the Eighteenth Amendment.
Again, he seemed driven by his ambition, and the Senate campaign produced
more anxiety. Betty recorded in her diary that “Dwight is so tired; so
discouraged; so wild that he has been trapped into this Senatorial campaign. He
is exhausted, does not want it, would be glad to lose.”37 Fate, devising new ways
to punish him, produced a landslide victory in November.
As senator, Morrow seemed worn from the immense burdens he had carried
over the years. He immediately disappointed liberal admirers. Despite the
Depression, he voted against food relief, the soldiers’ bonus bill, and tougher
utility regulation. This prompted one journalist to declare that in three months he
had wiped away the liberal reputation of a lifetime.38 Such remarks stung
Morrow. He approached problems in his thorough, dogged way but got mired in
their complexity. He passed sleepless nights reading tomes on unemployment,
and Betty warned him that he was getting too little sleep. “That’s nonsense,” he
replied. “Most people have exaggerated ideas about sleep. If I can get two solid
hours I’m all right.”39 At the family Fourth of July celebration in 1931, Morrow
stared sadly at the lawn of his Englewood home and said to his son-in-law,
“Charles, never let yourself worry. It is bad for the mind.”40
In September, Morrow had a minor stroke while he and Betty lunched with
newspaper publisher Roy Howard on a yacht in Maine. Yet he couldn’t stop his
compulsive activity or moderate his exhausting pace. On October 2, 1931, after
spending a sleepless night on a train from Washington to New York, he told a
passenger, “I kept waking up thinking what a hell of a mess the world is in.”41
That day he attended a political reception at his Englewood home. He shook
hands with four thousand people; his right hand became blistered, and he had to
use his left. Three days later, then in his late fifties, Dwight Morrow died in his
sleep of a cerebral hemorrhage. The man once unsettled by his dream of great
wealth left a million dollars in charitable bequests alone.
And Harold Nicolson left an appropriately ambiguous epitaph: “There was
about him a touch of madness or epilepsy, or something unhuman and abnormal.
. . . He had the mind of a super-criminal and the character of a saint. There is no
doubt at all that he was a very great man.”42 Yet Nicolson tempered this
judgment with a far less generous one: “Morrow was a shrewd and selfish little
arriviste who drank himself to death.”43
In one respect, fate proved merciful to Dwight Morrow. Five months after
Morrow died, his grandson, Charles Lindbergh, Jr., was kidnapped from his
family’s home near Hopewell, New Jersey. The House of Morgan tried to help
solve the famous case. Jack Morgan sounded out an underworld contact, and the
bank fielded tips from several sources, including a palmist. It also bundled and
numbered the ransom money that Lindbergh’s associate, Dr. John F. Condon,
passed across a dark cemetery wall to the kidnapper. When the baby’s body was
discovered in a wood two months later, Anne and Charles moved to Next Day
Hill, the Morrow house in Englewood. Haunted by the press and bad memories,
they left the United States for England in 1935. There they lived at Long Barn, a
thatched Kentish house owned by Harold Nicolson, Anne’s father’s biographer.
The Lindbergh kidnapping also spread fear through the House of Morgan.
Afterward, an army of 250 bodyguards protected the families of Morgan
partners, and many of their grandchildren would remember growing up
surrounded by opulence and armed guards.
CHAPTER SIXTEEN
CRASH
WE picture the bull market of the twenties as spanning the entire decade,
when in fact it was compressed into the second half. It was largely a Wall Street
phenomenon, not matched by other stock markets around the world. Germany’s
market had peaked in 1927, Britain’s in 1928, and France’s in early 1929. Why
the enormous burst of Wall Street optimism? It was partly a reaction to the
unsettled postwar years, with their inflation and labor strife, their bitter Redbaiting and anarchist turmoil. Financial history teaches us that the desire for
oblivion is the necessary precondition for mayhem.
The euphoria was also generated by a liquidity boom of historic proportions.
Cash was everywhere. In 1920, Ben Strong sharply raised interest rates to cool
off an inflationary commodity boom. This created not only a recession but
disinflationary conditions that lasted for several years. Money fled hard assets.
As commodity bubbles burst—ranging from Texas oil to Florida land—the
money poured into financial markets. Stocks and bonds floated up on a
tremendous wave.
With Europe devastated by war, America’s economy outpaced competitors
and created a large trade surplus. The economic boom was lopsided.
Commentators spoke of “sick sectors” in farming, oil, and textiles. With half of
America still living in rural areas, the Wall Street rally seemed unreal and
irrelevant to farmers. Nor did all banks prosper. Weakened by farming and oil
loans, small-town banks failed at the rate of two a day, a fact not noticed in
urban areas, where finance and real estate thrived together. For instance, in late
1928, John J. Raskob, Democratic national chairman, started plans to build the
Empire State Building as a monument to “the American way of life that allowed
a poor boy to make his fortune on Wall Street.”1
Raskob and other prophets of the age espoused an ideology of endless
prosperity and talked of a new economic era. Their shibboleths were readily
believed by the large number of young, inexperienced people recruited by Wall
Street. As the Wall Street Journal said after October 1929’s Black Thursday,
“There are people trading in Wall Street and many over the country who have
never seen a real bear market.”2 If many on Wall Street were determined to
forget past panics, most were too young to have ever known about them.
For many pundits, the sheer abundance of cash precluded any crash. A big
worry of the late 1920s was that America might run short of stocks. The day
before the 1929 crash, the Wall Street Journal reported, “There is a vast amount
of money awaiting investment. Thousands of traders and investors have been
waiting for an opportunity to buy stocks on just such a break as has occurred
over the last several weeks.”3 The excess cash was viewed as a sign of wealth,
not as an omen of dwindling opportunities for productive investment.
Riding this cash boom, the American financial services industry grew
explosively. Before the war, there were 250 securities dealers; by 1929, an
astounding 6,500. A critical shift in the popular attitude toward stocks occurred.
Bonds had always dwarfed stocks in importance on the New York Stock
Exchange. Before the war, banks and insurance companies might trade stocks,
but not small investors. We recall Pierpont Morgan’s steady disdain for stocks.
When asked why the market went down, he would say dismissively, “Stocks will
fluctuate,” or “There were more sellers than buyers,” as if the subject weren’t
worthy of analysis.4
In the 1920s, small investors leapt giddily into the stock market in large
numbers. They frequently bought on a 10-percent margin, putting only $1,000
down to buy $10,000 worth of stock. Of a total American population of 120
million, only 1.5 to 3 million played the stock market, but their slick, easy
winnings captured the national spotlight. The 1929 market disaster would be
heavily concentrated among the 600,000 margin accounts.
With active securities markets, it was cheaper for big corporations to raise
money by issuing securities than it was for them to raise money by paying for
short-term bank credit. Many companies also financed expansion from retained
earnings, continuing to wean themselves away from the banker dominance of the
Baronial Age. In fact, some businesses had so much surplus cash that they
engaged in stock speculation and margin lending—much as Japanese companies
in the 1980s would use spare cash for zai-tech investment—so that the Federal
Reserve’s pressure on banks to stop margin lending was offset by unregulated
industrial lenders.
In this pre-Glass-Steagall era, corporate preference for securities issues posed
no threat to Wall Street. The big New York banks profited through their new
securities affiliates, which could also bypass limits on interstate banking.
Guaranty Trust opened offices in Saint Louis, Chicago, Philadelphia, Boston,
and even Montreal. The securities unit of the Chase National Bank not only
operated coast-to-coast but set up offices in Paris and Rome. The world of
integrated global markets was thus already foreshadowed by the 1929 crash. In
1927, Guaranty Trust invented American depositary receipts (ADRs), enabling
Americans to buy overseas stocks without currency problems. This would be an
extremely lucrative business for J. P. Morgan and Company when it later took
over Guaranty Trust.
There were now two securities worlds on Wall Street. One was retail-oriented
and pedestrian and was typified by the National City Company, the affiliate of
the bank. National City chairman Charles Mitchell lent a carnival tone to
securities marketing. He would organize contests and pep talks for his nearly two
thousand brokers, spurring them on to higher sales. Bankers took on the image
of garrulous hucksters. Among these men, there was a fad for foreign bonds,
especially from Latin America, with small investors assured of their safety. The
pitfalls were not exposed until later on, when it became known that Wall Street
banks had taken their bad Latin American debt and packaged it in bonds that
were sold through their securities affiliates. This would be a major motivating
factor behind the Glass-Steagall Act’s separation of the banking and securities
businesses.
By the 1929 crash, large deposit banks had vanquished many old partnerships
in the securities business and originated a startling 45 percent of all new issues.
The National City Bank Company sponsored more securities than J. P. Morgan
and Kuhn, Loeb combined. Nevertheless, elite Wall Street survived, typified by
the august House of Morgan. The bulk of prime securities business remained
with the prestigious, old-line, wholesale houses. J. P. Morgan had no distribution
network but originated issues distributed by as many as twelve hundred retail
houses; still distant from markets, the bank allocated shares to “selling groups.”
It co-managed issues with its Money Trust allies—National City, First National,
and Guaranty Trust—while Morgan Grenfell worked with the Houses of Baring,
Rothschild, Hambro, and Lazard.
As in the days of the Pujo hearings, big bond issues were still conducted
according to fixed rituals. AT&T provides an excellent example. At the Morgan
Library in 1920, Jack Morgan, Harry Davison, and Robert Winsor of Kidder,
Peabody worked out a secret deal to divide American Telephone and Telegraph
issues. They kept identical participations throughout the decade: Kidder,
Peabody, 30 percent; J. P. Morgan, 20 percent; First National Bank, 10 percent;
National City Bank, 10 percent; and so on. The Gentleman Banker’s Code
prohibited the raiding of customers. It was thought not only bad form, but
dangerous. J. P. Morgan and Kuhn, Loeb feared that if they competed for each
other’s clients, they would destroy each other in bloody, internecine battles.
On its marble pedestal, the wholesale House of Morgan didn’t need to twist
the arms of small investors. As The New Yorker said in 1929, “It is doubtful
whether any private banker ever enjoyed the individual prestige of Morgan
senior, but the firm now is vastly more powerful than it was in his day.”5 By
decade’s end, it would have less to repent than many other banks. Some of this
was the result of tradition, as the bank profited from its Victorian disdain for the
stock market—as Pierpont once told Bernard Baruch, “I never gamble.”6 Jack
Morgan had held a Stock Exchange seat since 1894 but never conducted a
transaction. Only once, during a Liberty Bond rally, did he appear on the
Exchange floor. He kept the seat only to reduce commissions from the thirty-odd
brokers the bank used. In addition, common stock issues accounted for a mere 3
percent of Morgan-sponsored securities. Since the chief damage of the 1920s
would be done by stock manipulation, the House of Morgan was spared
involvement in some of the worst excesses.
J. P. Morgan and Company engaged almost solely in a wholesale bond and
banking business. With glaring exceptions, it refused to water down standards. It
recommended conservative investments, such as railroad bonds, but shied away
from the tipster’s art of plugging stocks. On the notable occasion when this
Morgan policy was violated, the bank was deeply embarrassed. In July 1926,
Morgan partner Thomas Cochran, setting sail for Europe, entertained a reporter
aboard the liner Olympic. (In the Roaring Twenties, even luxury liners had
brokerage offices.) When Cochran was at sea, the Dow Jones ticker quoted him
as saying that General Motors would eventually sell at 100 points higher than its
current price. Aware of the Morgan-Du Pont interest in the company, traders
drove up GM stock by 25 points in two days. Aghast at this proof of its power,
the bank made sure such incidents didn’t recur.
Although the Morgan bank, as an institution, was distant from the stock
market, its partners weren’t averse to speculation. They were in an excellent
position to take advantage of insider trading, which was a common vice of the
1920s, and not illegal. Not only did Jazz Age Wall Street echo with rumors, but
being in a position to plant false reports was considered a mark of financial
maturity. Lax Stock Exchange rules and meager corporate reports made inside
information more valuable, and investors milked their Wall Street friends for
news. Inside tips didn’t guarantee success—many investors perished on Black
Thursday clutching them—yet they were profitable enough to be considered a
major perk of Wall Street employment.
In the 1930s, Morgan partners joined those favoring an end to insider trading.
Lamont would say flatly, “This is a simple and unanswerable proposition in
business ethics.”7 Some had had the courage to take this stand earlier. Judge
Elbert Gary, chairman of U.S. Steel, used to hold board meetings each day after
the stock market closed; following these meetings, he would brief the press,
denying directors an exclusive opportunity to benefit from his news. By and
large, however, Morgan partners, like others on Wall Street, did benefit from
insider trading, not so much on pending deals as on routine corporate
information.
Edward Stettinius was a loquacious director of both General Motors and
General Electric. In 1922, Harry Davison asked whether he should buy GM
preferred stock for his wife. Stettinius replied: “I hesitate . . . about buying any
common stock until after the statement has been published showing the results of
last year’s operations. This statement, which is now in the course of preparation,
will probably show a total debit against Surplus Account of about $58 million as
indicated in the memo attached hereto. I think it possible that this statement may
have a depressing effect on the stock and would not favor purchases of the stock
until after the statement shall have been published.”8 Stettinius handled GM
purchases for both Jack Morgan’s and Tom Lamont’s personal accounts.9 We
might call this the shooting-fish-in-a-barrel school of finance.
In passing tips, Stettinius displayed a vague sense of the impropriety of doing
so. In 1923, Morgan partner Herman Harjes in Paris asked about buying General
Electric shares. Note how Stettinius hesitates before spilling the news:
I would much prefer to buy than to sell the stock of the General Electric Co. at
present prices, say 196. I do not feel that I can properly tell you what
information has come to me as a member of the Executive Committee and Board
of Directors of the Co., but I do think that I can say to you (to be treated
confidentially) that it is my guess that some action will be taken within the next
6 months to still further enhance the value of the company’s shares. I shall be
surprised if the shares do not sell on a basis of 225 or 230 per share, within the
next six or nine months. The Co. is doing a wonderful business—and this again
in confidence—profits for 11 months of 1923 show an increase of 50$$$ over
the profits for the corresponding period of 1922.10
If Stettinius displayed scruples, it was less about revealing corporate
information than in having it leak out to those beyond the inner circle of J. P.
Morgan partners.
The House of Morgan was involved in another period phenomenon that belied
its well-advertised repugnance toward common stock. Between 1927 and 1931,
the bank participated in more than fifty stock pools, which weren’t outlawed
until the New Deal. They were regarded as racy and glamorous, attracting
cocktail party sophisticates, and their progress was reported in the press. These
syndicates blatantly manipulated stock prices. Some would hire publicity agents
or even bribe reporters to “talk up” a stock. Pools made Joe Kennedy’s
reputation after he was enlisted in 1924 to defend John D. Hertz’s Yellow Cab
Company against a bear raid; afterward, Hertz suspected Kennedy of carrying
out such a raid against the stock himself. By October 1929, over one hundred
stocks were being openly rigged by market operators. So while Morgan partners
claimed they preferred sound long-term investments, they were far from immune
to the speculative atmosphere.
The 1920s were also a time of manic deal making. As Otto Kahn recalled,
there was “a perfect mania of everybody trying to buy everybody else’s property.
. . . New organizations sprang up. Money was so easy to get. The public was so
eager to buy equities and pieces of paper, that money was . . . pressed upon
domestic corporations as upon foreign governments.”11 Although J. P. Morgan
had no formal merger department, it informally spun many webs. It specialized
in deals of strategic import, requiring sensitive contacts abroad or covert
government support. Many of its deals were directed against British interests;
first and foremost, 23 Wall operated as an arm of Washington.
Consider telecommunications. After the war, the United States feared the
British military monopoly of undersea cable communications, which had yielded
invaluable wartime intelligence. The U.S. Navy favored the use of a new private
corporation, supported by Washington, to battle Britain in the emerging field of
radio technology. Privately, President Wilson notified General Electric that he
wanted to counter Britain’s cable monopoly with an American radio monopoly.
Morgan money helped GE to buy out British interests in American Marconi,
which became the core of Radio Corporation of America. Washington stayed on
RCA’s board as a nonvoting observer.
During the 1920s, the House of Morgan also helped Sosthenes Behn to launch
his worldwide empire of International Telephone and Telegraph. Again the
bank’s role wasn’t raiding but arbitrating. A historic truce was hatched at 23
Wall, whereby AT&T ceded overseas markets to Behn, who promised, in turn,
that ITT wouldn’t build telephone plants in the United States. The deal,
amazingly, lasted sixty years. This cartel arrangement showed that the Morgan
bank still preferred collusion among big industrialists to the competitive
economy laissez-faire ideologues.
With his taste for political intrigue, Behn and the House of Morgan were a
natural match. Through Morgan partner Herman Harjes in Paris, Behn took over
the Spanish telephone system, which became the crown jewel in his international
empire. In the mid-1920s, J. P. Morgan and Company helped Behn to take over
telephone systems in Brazil, Argentina, Chile, and Uruguay, ousting the British
from their former preeminence. The bank championed Behn’s cause in
numberless ways. When it learned during Austrian loan negotiations that the
government planned to buy telephone equipment from Siemens, it mentioned
that ITT was eager to tender bids. Lamont sometimes functioned as Behn’s
secret plenipotentiary. In 1930, he had an audience with Mussolini solely to
advance Behn’s desire to build a factory in Italy. Deal making in this era was
always a discreet, behind-the-scenes operation and had none of the flamboyance
associated with the stock market raiders of a later day.
early 1929, a sure sign of impending disaster occurred when the House of
Morgan cast aside its traditional aversion and joined the flurry of stock
promotion. Wall Street was being swept by new forms of leveraging. Borrowing
a British concept, many brokerage houses, including Goldman, Sachs,
introduced leveraged mutual funds, called “investment trusts.” A second favorite
device was the holding company. Holding companies would take over many
small operating companies and use their dividends to pay off their own
bondholders, who had financed the takeovers in the first place. This permitted an
infinite chain of acquisitions.
Adopting the vogue for utility holding companies, the House of Morgan in
1929 sponsored the United Corporation, which took over Mohawk-Hudson, the
Public Service Corporation of New Jersey, Columbia Gas and Electric, and other
companies that controlled more than a third of the electric power production in
twelve eastern states. It was a throwback to the days when Pierpont promoted
trusts, kept a large block of stock for himself, and appointed the directors. The
United Corporation’s books were kept at 23 Wall, and its board was filled with
Morgan friends and partners. The bank also sponsored Standard Brands, an
amalgam of food-product companies that included Fleischmann, Royal Baking
Powder, Chase and Sanborn, and E. W. Gillette.
The master boondoggle of 1929 was the Morgan-sponsored Alleghany
Corporation, a holding company for the railroad and real estate empire of
Cleveland’s Van Sweringen brothers. Oris P. and Mantis J. Van Sweringen were
a queer, taciturn pair who lacked much formal education. Short, dumpy, and
round-faced, they seemed as inseparable as Siamese twins. Living at Daisy Hill,
their seven-hundred-acre Swiss chalet farm outside Cleveland, the bachelor
brothers ate together, shared a bedroom, seldom socialized, avoided alcohol and
tobacco, and dispensed with chauffeurs, valets, and other trappings of wealth. On
IN
the eve of the crash, they were worth over $100 million.
Beginning with their development of suburban Shaker Heights, the brothers
had learned the art of using other people’s money. They got into railroads when
they built a line from downtown Cleveland to the development. They whirled
into the Morgan orbit in 1916 when the Justice Department pressured the New
York Central into divesting the “Nickel Plate” railroad, which ran into
Cleveland; the Van Sweringens arose as the friendly party who would take the
road off New York Central’s hands for a mere $500,000 cash. Alfred Smith,
president of the New York Central, took the boys into 23 Wall, threw his arms
around them, and told Lamont, “I have had many experiences with these two
boys. They are very capable. . . . I want you to cooperate with them in any way
you legitimately can.”12 Lamont complied.
The House of Morgan and Guaranty Trust orchestrated financing for the
brothers’ railroad and real estate takeovers. As masters of leverage, the Van
Sweringens used each new purchase as collateral for the next. Their holding
companies took control of other holding companies in an endless hall of mirrors,
all supported by little cash but powerful Morgan connections. By 1929, the Van
Sweringen railroads ruled America’s fifth largest railroad system from atop a
forty-story Cleveland tower and controlled trackage equal in length to all of
Britain’s railroads.
Issued by J. P. Morgan and Company in January 1929, the stock of the
Alleghany Corporation was meant to be a summary achievement for the brothers
—the super holding company atop their pyramid of debt. In the words of the
New York Times, it was “the holding-company device pushed to its uttermost
limits.”13 The association with the Van Sweringen brothers showed how the
recklessness of the 1920s had at last infected the citadel of respectability itself—
the Morgan bank. Even the mystical Morgan name couldn’t hold together a
pyramid built of nothing but faith. It would be four years before the public
finally knew the questionable circumstances under which the Alleghany shares
had been floated. In early 1929, however, the issue looked like the best buy in
town.
much of 1929, Jack Morgan and Tom Lamont were distracted from the
coming storm by the thorny problem of Germany’s reparations. They had
continually warned against excess German borrowing only to find themselves
subsequently making the loans. In this twilight of the businessman-diplomat, an
admiring America still looked to Morgan bankers for guidance. GE chairman
Owen Young and Jack Morgan were chosen as American delegates to a Paris
FOR
conference that was supposed to devise an ultimate solution to the reparations
issue; Tom Lamont and Boston lawyer Thomas W. Perkins were alternates. The
group was technically unofficial although again in close touch with Washington.
In February, they set sail on the Aquitania. Upon landing at Cherbourg, they
were greeted by French officials, who quickly transferred them to a private
railroad car for the trip to Paris.
Chaired by Owen Young, the conference took place at the plush new Hotel
George V. Once again the sticking point was Germany’s capacity to make
reparations. As usual, the French, represented by Emile Moreau of the Banque
de France, were obstinate in their opposition to lower reparations. And the U.S.
refused to lower war debts. Believing reparations financially insupportable, the
Reichsbank president, Dr. Schacht, disrupted the conference several times, flying
into a rage and storming from the room. One of the British delegates, Lord
Revelstoke, noted that with “his hatchet, Teuton face and burly neck and badly
fitting collar . . . he reminds me of a sealion at the Zoo.”14
At this conference, Jack Morgan had difficulty hiding his intense dislike of the
Germans. Dr. Schacht made the mistake of buttonholing him about the House of
Morgan’s financing of Germany’s railways. Jack was scornful. “From what I see
of the Germans they are 2nd-rate people,” he cabled New York, “and I would
rather have their business done for them by somebody else.”15 He grumbled
about how the conference was ruining his plans for a Corsair cruise on the
Mediterranean, not to mention those for shooting in Scotland; Dr. Schacht noted
Morgan was the first to slip away. This was a rare occasion when Jack let his
feelings surface in public, and Lord Revelstoke compared him to “a wild bison
in a shop that sells Dresden china.”16
In Paris, Dr. Schacht hoped to win substantial decreases in reparations and
was irate at French intransigence. He shocked the Allies, in turn, by proposing
that Germany get back the Polish corridor and take overseas colonies in
exchange for the high cost of reparations. To help break a diplomatic logjam,
Owen Young responded to a suggestion by his young assistant, David Sarnoff,
shortly to be president of RCA, that he attempt informal negotiations with
Schacht. Lamont told Sarnoff, “Good luck. If anyone can do this job, you can.”17
On May 1, the Russian-Jewish immigrant and the German Hjalmar Schacht had
their first dinner at Schacht’s room at the Hôtel Royal Monceau. There was
instant rapport. Schacht had once studied Hebrew, a language Sarnoff learned
while studying for the rabbinate, and they ended up talking about everything
from German opera to the Old Testament. They also discussed reparations, and
the first dinner turned into a marathon, eighteen-hour negotiating session.
Sarnoff later took credit for selling a “safeguard clause” to Schacht that related
reparations to German economic performance. This idea reconciled Schacht,
however briefly, to the plan.18
Jack was so delighted by Sarnoff’s initiative that he brought him a big bunch
of ripe French strawberries. He also told Sarnoff, “David, if you actually bring
back a signed agreement, you can have anything you ask for that is within my
gift.”19 After another lengthy bargaining session in late May, Sarnoff brought an
agreement back to the Ritz Hotel. Jack, amazed, tipped his black homburg to
Sarnoff. “I doff my hat to you,” he said with a bow. “And I propose to stick to
my promise. Ask for anything you want, and it will be yours.”20 Sarnoff asked
for a meerschaum pipe of the sort Jack smoked. It was made by an elderly
London pipemaker, who first made Pierpont’s. Jack chartered a plane so
someone could fly to London and fetch the pipe for Sarnoff.
The Young Plan reduced the schedule of reparations payments from that
designated by the earlier Dawes Plan, stretching them over a fiftynine-year
period. It also attempted to depoliticize German debt by converting it into
tradable bonds. Instead of paying the Allies directly, Germany would pay
bondholders through a new Bank for International Settlements. This would free
Germany from political interference and lift the yoke of the hated agent general’s
office. The boyish Parker Gilbert left Berlin to become a J. P. Morgan partner, a
move that didn’t surprise the Germans. When Gilbert warned the Germans
against seeking any foreign loan beyond the Young loan, Karl von Schubert of
the German Foreign Office spied an ulterior motive. J. P. Morgan was about to
float a big loan for France, and a German loan “would be seen [by Gilbert] as a
disagreeable competitor for the project of the House of Morgan, to which he is
known to be close,” said von Schubert.21
Set up in a hotel off the main square of Basel, Switzerland, the new Bank for
International Settlements fulfilled Montagu Norman’s dream of a place where
central bankers could forge international monetary policy without political
interference. Norman lovingly called it a confessional. A provincial U.S.
Congress didn’t like the word international and refused to let the Federal
Reserve join, although several private American banks bought shares in it. The
BIS would outlast the Young Plan and develop into a central bank for central
bankers, just as Monty Norman had envisioned.
In June 1929, the German debt settlement was announced. Newspapers
showed Dr. Schacht leaning across Owen Young to shake hands with Emile
Moreau of France’s central bank. No sooner were the documents signed than a
window curtain caught fire and burst into flames—a lurid omen suggesting the
Young Plan’s fate in Germany, where it would prove no more popular than the
Dawes plan. Dr. Schacht signed the document with strongly felt ambivalence,
insisting that the German Cabinet take responsibility. Before long, he would
denounce it and become a Nazi favorite. The $100-million portion of the Young
loan, sponsored by the House of Morgan in June 1930, would be its second and
final effort for Germany. Unlike the robust reception given to the Dawes loan,
the Young loan aroused scant enthusiasm. Nevertheless, in 1929 the Paris
conference gave a sense of closure to the era’s most intractable problem and
helped spur the final upward rise of the stock market in New York City. Owen
Young was even mentioned as a possible presidential candidate.
Jack stayed behind for the grouse season, Lamont returned to New
York. As a rule, Morgan partners didn’t belong to the select group of financiers
who could later point out their apocalyptic warnings about the stock market. (Joe
Kennedy later said he sold stocks after hearing his bootblack touting them.)
Lamont was an exponent of the new economic era and thought only a business
downturn could derail stocks. George Whitney thought the Federal Reserve
Board a “set of damn fools” for tightening credit in 1929. The only Morgan seer
was Russell Leffingwell, the former assistant Treasury secretary who had come
to the Corner in 1923 from the law firm of Cravath, Henderson, Leffingwell, and
de Gersdorff. An entertaining and courtly man, Leffingwell had a long pointed
nose and a shock of premature white hair that gave him an air of wisdom. He
was a liberal and sometime Democrat. In his combative, curmudgeonly
intellectual style, he pilloried ideologues of both the left and the right. A
perpetual worrier, he was withering in his view of the optimistic Andrew
Mellon: “Meanwhile, the greatest Secretary of the Treasury since Alexander
Hamilton grows richer on paper and thinks that all is for the best possible in the
best of possible worlds.”22
Leffingwell subscribed to the cheap-money theory of the crash; that is, he
blamed excessively low interest rates for the speculation in stock. In 1927,
Monty Norman had visited New York and asked Ben Strong for lower interest
rates to take pressure off the pound. Strong obliged by lowering his discount
rate. Leffingwell believed this had triggered the stock market boom. In early
March 1929, when Leffingwell heard reports that Monty was getting “panicky”
about the frothy conditions on Wall Street, he impatiently told Lamont, “Monty
and Ben sowed the wind. I expect we shall all have to reap the whirlwind. . . . I
think we are going to have a world credit crisis.”23 Later he held the two directly
responsible for the Depression. It may be recalled that Jack Morgan and others at
WHILE
23 Wall had favored England’s return to gold in 1925, but only with the proviso
that Monty raise rates, not that Ben lower them.
Benjamin Strong didn’t live to see the crash. He went through a hellish series
of illnesses—tuberculosis, influenza, pneumonia, and shingles—and was shot
full of morphine when he died, at age fifty-five, in October 1928; Montagu
Norman, disconsolate, mourned Strong’s death for years. During the spring and
summer of 1929, Strong’s hand-picked successor, George Harrison, pleaded with
the Federal Reserve Board in Washington to increase interest rates. Instead, the
board vetoed rate hikes in New York. Russell Leffingwell saw a Greek tragedy
unfolding. He feared that Harrison had inherited the antagonism left by Strong
and that “the immense resistance offered by the Washington Board may be partly
the result of ten years of bottled up bitterness against poor Ben’s domination.”24
At the worst possible moment, the system was undercut by bureaucratic feuding.
When the discount rate was belatedly raised in August 1929 from 5 to 6 percent,
it was too late to cool off the boom.
On September 5, 1929, the tragedy of that Black Thursday was foreshadowed
when an obscure economist named Babson repeated a warning he had been
making for years: “Sooner or later a crash is coming, and it may be terrific.”25 In
ordinary times, the remark would have been ignored. Instead, circulated on news
wires, it briefly cracked the stock market. Professor Irving Fisher of Yale, high
priest of academic hope, rallied the faithful: “Stock prices have reached what
looks like a permanently high plateau.”26 But the American economy had
peaked in August and was falling even as Fisher spoke.
By mid-October, the stock market gyrations so worried Hoover that he sent an
emissary, Harry Robinson, to consult Lamont, his chief adviser on Wall Street.
Hoover, the first president with a telephone on his desk, frequently rang Lamont
before breakfast. Despite Hoover’s closeness to the House of Morgan, many
partners secretly ridiculed him as cold, pompous, and pigheaded. Parker Gilbert
once called him “Secretary of Commerce and Under-Secretary of all the other
departments.”27 During the 1928 campaign, the Democrats had released a memo
written by Leffingwell in his Treasury days that said, “Hoover knows nothing
about finance, nothing about exchange and nothing about economics.”28 Hoover
was petulant because the bank hadn’t done more to aid his reelection. Before the
primary, he sent a threatening note to Lamont, accusing him of working for
Charles Dawes.
To his credit, however, the president wasn’t heedless of the Wall Street peril.
In early 1928, while commerce secretary, he was flabbergasted by Coolidge’s
cavalier lack of concern about the stock market. And in March 1929, as
president, he summoned to the White House Richard Whitney, vice-president of
the New York Stock Exchange and brother of Morgan partner George Whitney.
Hoover wanted the Exchange to curb speculation—a plea that was ignored.
Hoover also blamed the Fed for low interest rates and providing banks with
ample reserves, which were then used to finance buying on margin.
Now Hoover’s messenger, Harry Robinson, wished to know the answers to
two questions: Were the increasing number of stock mergers grounds for
concern? And should the federal government take action to stop speculation on
Wall Street? Five days before Black Thursday, Lamont wrote Hoover a memo in
which he whitewashed the practices of an era. He blandly waved away Hoover’s
well-founded worries: “First we must remember that there is a great deal of
exaggeration in current gossip about speculation. . . .” He paid tribute to the selfcorrecting forces of the marketplace. Citing industries that had lagged in the
rally—automobiles, lumber, oil, paper, sugar, and cement—he declared that the
market hadn’t overheated. With a nod to United Corporation and Alleghany, he
praised the new holding companies that now dominated railroads and public
utilities. His rousing peroration set all fears to rest: “Since the war the country
has embarked on a remarkable period of healthy prosperity. . . . The future
appears brilliant.”29 The only fault he found was with the Federal Reserve Board
in Washington—for blocking higher interest rates at the regional reserve banks.
Martin Egan brought the memo to the White House. The president was so
eager to hear Lamont’s report that he held up a parade for ten or fifteen minutes
in order to talk to Egan, who found him generally confident about his presidency,
if edgy about Wall Street. The satisfaction didn’t last long. On October 22, the
president sent a frantic messenger to Lamont expressing concern about the
“speculative situation which seemed to him to be running very wild,” as Lamont
relayed the message to Jack.30 Hoover was correct—if a little late. The next day,
panic selling hit selected blue chips, with Westinghouse dropping 35 points and
General Electric 20. The balloon was about to burst.
The following morning, Winston Churchill stood in the visitors’ gallery of the
New York Stock Exchange. Two weeks earlier, he had lunched with the Morgan
partners who had helped him to restore England to the gold standard in 1925.
Now he looked down on a scene that many would circuitously trace to that 1925
decision, with its need for lower U.S. interest rates. Within the first two hours of
trading, almost $10 billion was lost on paper. The drops posted were so sharp
and the resulting shrieks so fearful that the gallery was closed by late morning.
As in 1907, desperate men stood on the steps of Federal Hall, hands in their
pockets, their hats pulled low, staring grimly ahead. Their shocked silence is
almost palpable in the photographs taken that day. They stood six deep outside
the Stock Exchange. Having bought on margin, many investors were ruined
outright. Newspapers noted a strange noise filtering through the canyons of the
Street—a roar, a hum, a murmur. It was the cumulative sound of thousands of
stunned people giving vent to their feelings. Violence was in the air. When a
workman appeared atop a building, the crowd assumed he wanted to leap and
was impatient with his hesitation. A dozen suicides were reported, some
poetically apt. “Two men jumped hand-in-hand from a high window in the Ritz,”
Galbraith noted. “They had a joint account.”31 Only the Stock Exchange pages,
who lacked investments, savored the ruin of their bosses.
Around noon, the master bankers of Wall Street marched briskly up the steps
of 23 Wall. These were the men whose exploits had thrilled America—Charles
Mitchell of National City, Albert Wiggin of Chase, Seward Prosser of Bankers
Trust, William Potter of Guaranty Trust. They represented $6 billion in assets,
perhaps the world’s greatest pool of wealth. For the last time, they enjoyed the
heroic stature that the Jazz Age had conferred upon them. To Street veterans, it
came as no surprise that the meeting was chaired by fifty-eight-year-old Tom
Lamont. The Morgan role in rescues was now automatic. Whatever its flaws, it
was the banker’s bank, the arbiter of disputes, the statesmanlike firm that offered
confidentiality no other house could match. In the words of B. C. Forbes,
“Thomas W. Lamont, foremost Morgan partner, stepped into a role on Thursday
which the original J. P. Morgan used to take in past panics.”32
Even in a crisis, Lamont was debonair, his sangfroid now legendary. He was
Wall Street’s mystery man, and Black Thursday would be his celebrated
moment. He was a strange candidate for the part. In his youth, he had lost a
year’s salary by selling short and thereafter forswore stock speculation. He was
also the banker who had advised a skittish Hoover to take a posture of benign
indifference toward Wall Street.
The bankers’ rescue on Black Thursday proved longer on symbolism than on
substance. The men knew they couldn’t prop up a collapsing stock market, so
they tried to introduce liquidity and engineer an orderly decline. There had been
terrifying moments that morning when no buyers appeared. So they pledged
$240 million to buy up assorted stocks and stabilize the market. (The
Guggenheims joined this pool.) It was just a finger in the dike, but it was the best
they could manage.
Because the president of the Stock Exchange was in Honolulu, the acting
president, Richard Whitney, was agent for the bankers’ rescue. He seemed an
ideal choice because his brother was a Morgan partner and his own firm was a
Morgan bond broker. Richard Whitney was also a great pretender, and his cool
demeanor masked the fact that he and his wife, an heiress, were absorbing stock
losses that would amount to $2 million.33 So when he took his jaunty stroll
across the Exchange floor at 1:30 P.M., it was an extraordinary performance. He
went to the trading booth for U.S. Steel and bid 205 for twenty thousand shares
—topping the previous bid by several points. As news of his purchase spread,
the market seemed to steady for a time.
The choice of U.S. Steel, a Morgan ward, was no accident: as gentleman
bankers, Lamont and the others felt they should support companies they had
sponsored. It later turned out Whitney had bought only two hundred shares of
Steel and pulled his order when others jumped in. At another fifteen or twenty
trading posts, he repeated his bidding, placing almost $20 million in orders. By
day’s end, only half the bankers’ money was actually spent. Yet their lingering
magic was such that the market briefly rallied that afternoon. It was the last
conjuring trick of the 1920s.
At the end of the trading day, the bankers regrouped for a second meeting and
designated Lamont their spokesman. He was mobbed by newsmen shouting
questions. Dangling his pince-nez, he came up with the most memorable
understatement in American financial history: “There has been a little distress
selling on the Stock Exchange.”34 Although often mocked, the line was actually
a reply to a sarcastic reporter who asked whether Lamont had noticed the selling
on the Exchange that day. Lamont blandly blamed the decline on a “technical
condition” and spoke of “air pockets” in the market. In a phrase of incomparable
ambiguity, he said the market was “susceptible to betterment.”35 These handholding sessions with reporters continued for weeks and made Lamont a
celebrity. He leapt to the cover of Time magazine.
Almost at once, Wall Street began to issue bravely hopeful statements. The
silver-lining specialists appeared in force. That night, the retail brokers met at
the brokerage house of Hornblower and Weeks and pronounced the market
“technically in better condition than it has been in months.”36 The headline in
the Wall Street Journal the next morning featured not the crash but the rescue:
“BANKERS
HALT
STOCK
DEBACLE:
CONFERENCE AT MORGAN’S OFFICE:
2-HOUR
SELLING
DELUGE
STOPPED AFTER
FOR SUPPORT.’37 The bankers
$1,000,000,000
asked Hoover to plug stocks as a cheap buy. Instead, he disgorged his wellknown platitude: “The fundamental business of the country, that is production
and distribution of commodities, is on a sound and prosperous basis.”38 The
market staggered through Friday and Saturday morning trading without a fresh
crisis.
The 1929 crash unfolded in two stages, with a weekend in between. On
Sunday, the mood was grim as tourist buses made ghoulish swings through Wall
Street to see where the crash had occurred. Those who pondered Hoover’s
statement over the weekend apparently rushed to sell on Monday. American
Telephone and Telegraph dropped 34 points, and General Electric 47 points.
Both the market and public faith in bankers were collapsing.
On Tragic Tuesday, October 29, investors looked back on Black Thursday as a
halcyon time. On this worst day in market history, the ticker lagged two and a
half hours behind. More than sixteen million shares changed hands—a record
that would stand for forty years. By day’s end, the two-day damage had dragged
share prices down by nearly 25 percent. Buying didn’t dry up this time: it simply
disappeared. At the rally’s peak, White Sewing Machine sold for 48, then
slumped to 11 on Monday. On Tuesday, when no buyers surfaced, an alert
messenger bought shares at $1 apiece. When commuters entered Grand Central
Terminal that evening, newsboys hawking papers shouted, “Read ’em and
weep!”
Unlike Black Thursday, Tragic Tuesday exposed the bankers’ frailty. They
were little men standing before a tidal wave. The New York Times wrote,
“Banking support, which would have been impressive and successful under
ordinary circumstances, was swept violently aside, as block after block of stock,
tremendous in proportions, deluged the market.”39 Where rumors on Black
Thursday were hopeful—men winked and talked of the “organized support”
taking control—Tragic Tuesday was marked by reports of bankers dumping
stocks to save themselves.
Lamont now faced a more hostile group of reporters. He had to deny reports
that his group was sabotaging the market for profit. “The group has continued
and will continue in a cooperative way to support the market and has not been a
seller of stocks.”40 With his usual cunning phraseology, he said the situation
“retained hopeful features.”41 In a vain effort to bolster confidence, U.S. Steel
and American Can declared extra dividends.
As if expressing a new bunker mentality, the Stock Exchange governors met
on Tragic Tuesday in a basement room under the Exchange floor. When Lamont
and George Whitney tried to slip in unnoticed, they were briefly detained by
guards. The main topic was whether to shut the market. Richard Whitney
thought a closing would unsettle the public and create a black market on the
curb, as happened at the outbreak of World War I. He also feared it would create
chaos among banks with heavy call loans to brokers. At various points in 1929,
Morgans had $100 million outstanding in such loans, with stocks pledged as
collateral. How would Wall Street banks and brokers function with stock
collateral frozen?
As in 1987, the group decided to shorten Exchange hours instead. An excuse
was at hand: overworked clerks were haggard from lack of sleep; shorter hours
would let them catch up on paperwork. Instead of ringing at ten o’clock, the
opening gong would sound at noon on Thursday, and the Exchange would be
shut Friday and Saturday. Richard Whitney left a graphic impression of the
basement meeting: “The office they met in was never designed for large
meetings of this sort, with the result that most of the governors were compelled
to stand or to sit on tables. As the meeting progressed, panic was raging
overhead on the floor. . . . The feelings of those present were revealed by their
habit of continually lighting cigarettes, taking a puff or two, putting them out and
lighting new ones—a practice which soon made the narrow room blue with
smoke.”42
In the weeks after Tragic Tuesday, rumor mills produced tales of clandestine
lunchtime meetings in the Stock Exchange basement. One version had Lamont
and Richard Whitney spying on traders through a periscope. Whitney continued
to walk about with a rakish air, exuding confidence, although he later spoke of
the “war atmosphere” of those days. Before emerging into public, he would
exhort his associates, “Now get your smiles on boys!”43 As it happens, the real
remedial action that was taken came not from the old Wall Street club but by a
force new to financial panics—the Federal Reserve.
In late October, Jack, back from Europe, chaired a meeting at the Morgan
Library with George Harrison, Ben Strong’s successor at the New York Fed. Son
of an army officer, a graduate of Yale and Harvard Law School, Harrison was a
handsome, pipe-smoking man who limped as a result of a boyhood accident. An
activist in the Strong mold, Harrison lowered interest rates and pumped in
billions of dollars in credit to buoy banks with heavy loans to brokers. “The
Stock Exchange should stay open at all costs,” Harrison announced.
“Gentlemen, I am ready to provide all the reserve funds that may be needed.”44
Rebuked by Fed governor Roy A. Young in Washington, Harrison courageously
replied that the world was “on fire” and that his actions were “done and can’t be
undone.” He bought up to $100 million in government bonds per day and made
sure Wall Street banks had adequate reserves with which to deal with the
emergency. In scale and sophistication, his postcrash actions made Pierpont’s in
1907 look antediluvian in comparison, for he could expand credit as needed.
Harrison confirmed the principle of government responsibility in financial
panics.
The days after the crash were a great time for pep talks and false bravado. The
redoubtable Irving Fisher found it consoling that weak investors were shaken
from the market and that stocks now rested in stronger hands. He described the
postcrash market as a bargain counter for shrewd investors.45 From the fastness
of his Pocantico Hills estate, John D. Rockefeller issued an oracular statement:
“Believing that fundamental conditions of the country are sound . . . my son and
I have for some days been purchasing sound common stocks.”46 Rockefeller’s
words were relayed to Eddie Cantor, then starring in Whoopee on Broadway and
a victim of the collapse of the Goldman Sachs Trading Corporation. Cantor
replied, “Sure, who else had any money left?”47
Eddie Cantor later filed a $100-million suit against Goldman, Sachs. This was
probably less damaging to the firm’s future than his new vaudeville routine. In it,
a stooge walked out on stage violently wringing a lemon. “Who are you?”
Cantor asked. “I’m the margin clerk for Goldman, Sachs,” the stooge replied. So
many suits were filed against Goldman, Sachs that during listless Depression
days brokers with a taste for black humor would call up the firm and ask for the
Litigation Department. From now on, even humor would puncture Wall Street’s
pretensions. The age had come to an abrupt, calamitous end. The crash was a
blow to Wall Street’s pride and its profits. As Bernard Baruch later said, “The
stereotype of bankers as conservative, careful, prudent individuals was shattered
in 1929.”48
CHAPTER SEVENTEEN
DEPRESSION
AFTER the crash, Herbert Hoover wasn’t quite as passive or impotent as
legend suggests. He announced tax cuts and public works programs and asked
utilities to embark on new construction. Bringing business leaders to the White
House, he extracted pledges to maintain wages and thus avert an erosion of
purchasing power. Henry Ford cut car prices and boosted workers’ wages to $7 a
day. Meanwhile, the New York Fed orchestrated a swift series of interest-rate
cuts that more than halved its discount rate, to 2½ percent, by June of 1930.
Clearly, the principle of government action to ease economic misfortune was
enshrined before the New Deal.
Wall Street tried to face the crash with stoic fortitude and treat it as a stern but
salutary lesson. Everybody sounded philosophical. In late 1929, Lamont
described the crash as an unpleasant warning of no lasting harm: “I cannot but
feel that it may after all be a valuable lesson and the experience gained may be
turned to our future advantage. . . . There has never been a time when business as
a whole was on a sounder basis.”1 This reasonable approach reflected a belief
that the financial trouble had ended; in fact, it had just begun.
Never entirely comfortable with the radical, tax-cutting Republicanism of the
twenties, Morgan partners hoped the crash presaged a return to more
conservative economics. They had been uneasy with the speculative debauch of
the twenties and welcomed a return to thrift and hard work. Dwight Morrow,
then a New Jersey senator, agreed that “there is something about too much
prosperity that ruins the fiber of the people.”2 Russell Leffingwell viewed the
slowdown as a “healthy purge” after a seven-year bacchanalia: “The remedy is
for people to stop watching the ticker, listening to the radio, drinking bootleg
gin, and dancing to jazz . . . and return to the old economics and prosperity based
upon saving and working.”3 Such comments savored of puritans punishing the
wicked. Treasury Secretary Andrew Mellon, who had ducked a leadership role
after the crash, now said of the downturn, “It will purge the rottenness out of the
system. People will work harder, live a more moral life.”4 Keynes, however
warned that such austerity would only deepen the Depression.
Many of the people who voiced these soothing statements were living off the
riches of the 1920s. Although Morgan partners suffered huge losses, they still
boasted wealth of embarrassing proportions. At Christmas 1928, each partner
had received a bonus of $1 million. In 1929, Jack’s son Junius moved into
Salutation, a forty-room stone mansion on an island beside his father’s island
estate. Even as stock brokers jumped from building ledges in October, workmen
in Bath, Maine, rushed to complete Corsair IV, a six-thousand-horsepower
yacht, 343 feet long, with gross tonnage of 2,181. Reputed to be the biggest
private yacht of all time, a floating palace with elevators, beamed ceilings, India
teak paneling, mahogany armchairs, and fireplaces, it required a crew of over
fifty and cost Jack an estimated $2.5 million. If the price tag was stupendous, it
amounted to only about half the annual income that Jack took from the bank in
the late 1920s.
Jack Morgan spent the Christmas of 1929 with his fifteen grandchildren at
Matinicock Point, and it was a warm, happy time. “It really resembled nothing
so much as some of the families of pigs I have seen on the farm,” he said.5 In the
new year, he looked forward to a cruise to Palestine with his friend Dr. Cosmo
Lang, the archbishop of Canterbury.
What made the postcrash lull tolerable on Wall Street was that a political
backlash hadn’t yet gathered force. Nobody yet demanded radical overhauls of
the system. That December, learning of proposed staff cuts at the American
Museum of Natural History, Jack covered the budget shortfall; the munificence
of rich men still meant something. Soon, though, the Depression would unleash
a popular fury against bankers that would rage for years.
Wall Street perhaps had better excuses for postcrash complacency in 1929
than in 1987. America boasted a trade and budget surplus and was finishing the
most triumphant economic decade in its history. In the world economy, it was the
ascendant power and the leading creditor nation. J. P. Morgan and Company was
so flush with cash that it was giving large gifts to its less fortunate London and
Paris partners in the late 1920s. The age can be forgiven some of its hubris.
The speculative mood didn’t immediately disappear. Those with money who
rushed in to buy stocks were at first vindicated: by early 1930, the market had
regained much lost ground. People chattered about a little bull market. Business
investment rose, accompanied by an upturn in car and home sales. On March 7,
1930, President Hoover proclaimed: “All the evidence indicates that the worst
effects of the Crash upon unemployment will have passed during the next sixty
days.”6
In April, however, the stock market began to slide, then dropped in May and
June with each new Hoover expression of hope. Unlike the spectacular
downward swoops of the previous October, the deterioration in prices was small
and steady but unrelenting. In mid-1932, the market would bottom out at onetenth of its September 1929 peak. So the yokels who sold in terror after the
Crash fared better, in the long run, than the canny traders who scouted for
bargains.
We shall never know whether wise economic management might have averted
the Great Depression. But two events led to a frightful, downward momentum.
On June 17, 1930, ignoring the pleas of over a thousand American economists,
President Hoover took up six gold pens and signed the Hawley-Smoot Tariff
Act. Its heavy tariffs would account for more than half the price of some
imports. The day before Hoover signed the bill, the stock market, in nervous
anticipation, suffered its worst day since Tragic Tuesday.
As a major sponsor of foreign loans, the House of Morgan was naturally
dismayed. If debtors couldn’t export goods to the United States, how would they
ever earn foreign exchange and pay off loans? “I almost went down on my knees
to beg Herbert Hoover to veto the asinine Hawley-Smoot tariff,” Lamont
declared.7 He soon referred to the world trading system as an insane asylum.8
Apprehensively, America’s most international bank watched the rise of a new
economic nationalism. It would dismantle the structure of free trade and free
flow of capital that the House of Morgan, along with Montagu Norman and Ben
Strong, had struggled to create in the twenties. Within two years, two dozen
countries would retaliate against the Hawley-Smoot tariff by raising their own
tariffs and slashing U.S. imports. The age of “beggar thy neighbor” economics
had begun.
The second great mid-1930 blunder was made by the Federal Reserve Board
in Washington: it ended the liberal provision of credit and shrank the money
supply. This was part of an attempt to rein in the New York Fed and end its
backdoor diplomacy with European ministries. Treasury Secretary Andrew
Mellon wanted higher interest rates to stop the flow of gold to Europe. Many at
the Fed saw austerity as a bitter but necessary medicine. “The consequences of
such an economic debauch are inevitable,” said the Philadelphia Fed governor.
“Can they be corrected and removed by cheap money? We do not believe that
they can.”9 By the second half of 1930, the postcrash calm was gone. That fall,
Hoover complained to Lamont about bear raids, short selling, and other
unpatriotic assaults against national pride. The following year would be the
worst in stock market history.
While the Fed had assumed responsibility for the health of the entire financial
system after the 1929 crash, the House of Morgan still played a part in specific,
smaller crises. The Fed had no obligation to rescue individuals, banks, or
companies; its concerns were more general. The crash’s aftermath revealed
much about Morgan priorities. While claiming to represent the public interest,
the firm actually represented its clients, cronies, and fellow bankers. Part of its
power had always stemmed from its fidelity to Wall Street friends, its generosity
in making loans to bankers and other financial houses. This was strikingly
demonstrated after the crash.
Take, for instance, the case of Charles E. Mitchell, chairman of the National
City Bank. Right before the crash, Mitchell had put together a deal to merge with
the Corn Exchange; if he had succeeded, he would have produced the world’s
largest bank, surpassing even the Midland Bank in London. Since the deal was to
be effected with National City shares, Mitchell needed to maintain their price at
$450. During the crash, the price plunged through this floor, and even furious
buying by the National City Company, the bank’s securities affiliate, couldn’t
sustain it. On his way to work, Mitchell stopped by 23 Wall and walked out with
a $ 12-million personal loan, secured by his own National City stock. When he
later failed to meet payments, the House of Morgan temporarily became the
second largest stockholder in National City. Later Mitchell said of Morgans,
“That firm stood at the very peak as to ethics, understanding, and leadership.”10
Yet however laudable in terms of loyalty, it was a reckless loan from a financial
standpoint.
Loyalty to clients was always the vice of the House of Morgan. Sometimes it
got in so deep it couldn’t get out. After the crash, the Van Sweringen brothers,
those financial acrobats of the 1920s, suddenly lost their balance. Their overly
indebted railroads were among the worst crash performers. Much like William
C. Durant with General Motors in 1920, the Van Sweringens kept buying
Alleghany stock on its way down. Using borrowed money, they only augmented
their losses. They ignored polite warnings from Morgans to stop their rash
purchase of more railroads, including the huge Missouri Pacific. Buying on
credit had become a Van Sweringen habit.
The Alleghany shares feverishly bid up in the frothy days of early 1929 now
led the market down in the autumn of 1930. They fell from 56 to 10 in just two
months. On the evening of October 23, 1930, Oris and Mantis Van Sweringen
met at Tom Lamont’s East Seventieth Street townhouse along with
representatives of Guaranty Trust. The short, moon-faced brothers were $40
million in hock to their broker. Having sponsored $200 million in securities in
their behalf, Morgans and Guaranty felt bound to prop them up. Lamont was
pessimistic about the prospects of railroads. He was already telling Hoover how
two hundred affluent passengers were arriving daily by air in New York City. Yet
he also feared a domino effect among Wall Street brokers who dealt with the
brothers.
The two banks led a syndicate that furnished a $40-million rescue loan for the
Van Sweringens. The rescue was handled with a delicacy and secrecy that
seldom accompanies personal bankruptcy. The Van Sweringens would remain as
figureheads so that nobody would suspect their true plight. They were rewarded
for their profligacy with a personal allowance of $ 100,000 a year. In the words
of Matthew Josephson, “The Van Sweringens’ personal insolvency during 5
years was one of the best kept secrets in Wall Street.”11 The following year,
when the brothers missed payments on their loans, Morgans and Guaranty Trust
foreclosed on their Alleghany Railroad empire. Ultimately Alleghany stock
would fall to 37½ cents per share.
As a lender of last resort, the House of Morgan favored like-minded
institutions of similar character and background. Kidder, Peabody was just such
a firm. It didn’t hustle business or steal clients and always played by Morgan
rules. In 1930, it was hit by multiple blows. The Italian government removed $8
million in deposits, and the new Bank for International Settlements instructed
Kidder to switch big sums to a Swiss bank. This led to another rescue at Jack
Morgan’s home, chaired by George Whitney, who had started his career as a
Kidder clerk. The House of Morgan arranged a $10-million line of credit. Under
Whitney’s tutelage, the old Kidder, Peabody was folded. Whitney brought in his
friends Edwin Webster, Chandler Hovey, and Albert H. Gordon to take over the
company’s name and goodwill. “Incidentally, we are slowly making the grade
socially,” Gordon reported to the elder Webster. “Yesterday for the first time
Morgan invited us to tea on our way out from the almost daily conference.”12
Unstinting in serving its friends, the House of Morgan could be heart-less to
those whose image didn’t fit the preferred profile. This became apparent with the
failure of the Bank of United States on December 11, 1930. With 450,000
depositors, it was New York’s fourth largest deposit bank. In general, the crash
and subsequent deflation had damaged the collateral behind bank loans. From a
rate of 60 bank failures a month in early 1930, the figure snowballed to 254 in
November and 344 in December of 1930. There were over a thousand bank
failures for the year. The failure of the Bank of United States was the largest thus
far and threatened more general ruin.
But this bank wasn’t a high-class operation. Its Jewish owners had chosen its
grand name in an effort to fool its Jewish immigrant customers into thinking it
had government support. In the lobby hung a large oil portrait of the U.S.
Capitol, reinforcing the misleading message. A proposed rescue plan for the
Bank of United States got a cool reception on Wall Street, even after Lieutenant
Governor Herbert H. Lehman, the state banking authorities, and the New York
Fed all pleaded for it. The regulators wanted to merge the Bank of United States
with three other banks, backed by a $30-million loan from the Wall Street banks.
At an emotional meeting, Joseph A. Broderick, the state banking chief,
warned that if the bankers rejected the rescue plan, it might drag down ten other
banks. One in ten New York families using bank accounts would be stranded. As
the Wall Street bankers sat stony-faced, Broderick reminded them how they had
just rescued Kidder, Peabody and how they had banded together years before to
save Guaranty Trust. But they refused to save the Jewish bank, pulling out of
their $30-million commitment at the last minute. “I asked them if their decision
to drop the plan was still final,” Broderick recalled. “They told me it was. Then I
warned them they were making the most colossal mistake in the banking history
of New York.”13 The biggest bank failure in American history, the Bank of
United States bankruptcy fed a psychology of fear that already gripped
depositors across the country.
The failure of the Bank of United States has been attributed to anti-Semitism
among Wall Street bankers. At the time, there were few commercial banks
owned by Jews, Manufacturers Trust being the only other important one in New
York. It is impossible to verify whether anti-Semitism stopped the bankers from
rescuing the Bank of United States. But Morgan records show that its clientele’s
Judaism was very much in the partners’ minds. When informing Morgan
Grenfell of events in New York, Lamont’s son Tommy noted that it was
patronized largely by foreigners and Jews.14 Russell Leffingwell described it as
“an uptown bank with many branches and a large clientele among our Jewish
population of small merchants, and persons of small means and small education,
from whom all its management was drawn.”15 Their attitude was shortsighted,
for the bank’s failure shook confidence across America. It was a failure that
could have been easily avoided by the proposed merger.
Had it not been for the large number of depositors, the Bank of United States
would not have deserved to survive. Its securities affiliate had sponsored shoddy
stocks and issued misleading prospectuses, and had been manipulated by the
bank’s own offices. Two of its owners were jailed for loose banking practices.
One, bank president Bernard K. Marcus, was the uncle of Roy Cohn, who
always blamed the bank’s failure on an anti-Semitic plot. Even banking
superintendent Broderick was indicted for not having shut the bank sooner. (He
was acquitted, after two trials.) To have to bail out such a bank undoubtedly
grated on the patrician bankers. But with so many Morgan rescues occurring in
those years, all backed up with high-flown rhetoric about saving the banking
system, it’s hard to believe religion wasn’t a major factor behind Wall Street’s
refusal to act. Hundreds of thousands of Jewish depositors were not worth one
Charles Mitchell. Jews were always a blind spot in the Morgan vision, no less
than in the days when Pierpont Morgan had vied with Jacob Schiff.
City of London had reacted to the New York crash with alarm, but also
with some quiet satisfaction and schadenfreude, After Black Thursday, the New
York Times reported that the “selling left London’s ’City’ in a comfortable
position saying ’I told you so.’ It had been expected for a long time. ”16 In many
ways, London profited from the crash as investors switched funds from New
York, easing the strain on British gold reserves. In 1930, there was even a brief
spurt in foreign lending as London became a safe haven for investors. At the
same time, the deeper prognosis for Britain remained grim. Its industry
languished, its unemployment rose, and London’s port was vulnerable to
spreading protectionism. Several Commonwealth countries dependent on
agricultural exports—Australia, Canada, and India—were hit early by the
Depression, and this hurt the City.
England’s real crisis, however, originated in Central Europe, just as Montagu
Norman had always suspected it would. Reparations continued to burden
Germany’s economy and polarize its politics. In March 1930, Dr. Schacht
submitted his resignation as Reichsbank president to protest additional German
debt mandated by the Young Plan. Germany’s day of reckoning—so feared and
so long predicted—was at hand. In the elections of September 1930, the National
Socialists and the Communists scored sizable gains, and Chancellor Heinrich
Brüning adopted an antireparations policy. The right wing capitalized on the
reparations issue. On January 5, 1931, Dr. Schacht attended a dinner party
thrown by Hermann Göring. For his tough stand on reparations, Schacht had
become a great favorite of the National Socialists. At the dinner, he met Hitler
and Joseph Goebbels and became a critical link between the Nazis and German
big business. That spring, as political street fights broke out in Germany,
pressure mounted to cast off the Versailles burden.
Into this already volatile situation came the powerful jolt of a major bank
failure. On May 11, 1931, the Credit Anstalt failed. It was not only Austria’s
largest bank but probably the most important bank in Central Europe. A rescue
plan announced by the Austrian National Bank and Rothschilds only served to
alert the world to trouble and brought on a run. The disaster spread through
THE
Central Europe, collapsing Austrian and German banks. In June, Norman gave
emergency credit to Austria’s central bank to prop up the schilling—his swan
song as a global lender of last resort. Along with an emergency loan to Germany,
it marked the end of British financial leadership in the 1930s.
It was against this backdrop that Lamont telephoned Hoover on June 5, 1931,
to propose a holiday on payment of war debts and reparations. Without it, he
warned, there might be a European crash that could prolong America’s
Depression. As Lamont’s files show, Hoover reacted in a grumpily defensive
manner: “I will think about the matter, but politically it is quite impossible.
Sitting in New York, as you do, you have no idea what the sentiment of the
country at large is on these inter-governmental debts.” A banker of the
Diplomatic Age, Lamont didn’t merely couch his argument in economic terms:
he made an unashamedly political appeal. “These days you hear a lot of people
whispering about sidetracking the Administration in the 1932 Convention,”
Lamont told Hoover. “If you were to come out with such a plan as this, these
whisperings would be silenced overnight.”17 In closing, Lamont said that if the
plan ever reached fruition, the bank would hide its role and let Hoover take the
credit: “This is your plan and nobody else’s.” What a cunning fellow Lamont
was when he whispered in Hoover’s ear!
Treasury Secretary Mellon tried to spike the idea and dismiss the debt as
Europe’s mess, but Hoover had now had enough with myopic isolationism. On
the evening of June 20, 1931, he telephoned Lamont at Torrey Cliff, his home on
the Palisades, to say that he had just announced a one-year moratorium on war
debt and reparations payments. He knew France would be indignant at the mercy
shown toward Germany and asked whether Lamont could sell the plan to the
French. Lamont expressed sympathy for the French position but also reminded
Hoover that they were the world’s most difficult people to deal with—a
recurring theme in his letters. Finally, though, he agreed to lobby the French
government through the Banque de France. True to Hoover’s predictions, the
French thought the moratorium an Anglo-American plot to let Germany escape
reparations.
The Hoover moratorium was a belated response to a crumbling world
financial system. The Danat Bank, one of Germany’s largest, failed on July 13,
1931. A teary-eyed Chancellor Briining rejected a New York rescue out of fear
that a bad loan to President Hindenburg’s son Oskar might surface in such an
operation. After the Danat failure, Germany had to shut the Berlin bourse and
the city’s banks. Around the world, creditors were calling in German loans. The
Morgan-led bond issues for Germany and Austria, heralded with trumpet peals
in the 1920s, plummeted with frightening speed. All the laborious work of that
decade was coming apart.
Now the crisis shifted to London, as investors traced financial ties between
Germany and England. During the summer of 1931, investors dumped sterling in
massive amounts. Even without Germany, the pound was already in a parlous
state. In late July 1931, a committee of bankers and economists, the May
Committee, had predicted that Britain’s budget deficit would widen to £120
million, with no end of red ink in sight. The committee recommended higher
taxes and a 10-percent cut in the dole. A few days later, sterling cracked on
world markets. The Bank of England told Philip Snowden, the chancellor of the
Exchequer, that Britain had almost exhausted its foreign exchange. Despite the
need for stringency, Ramsay MacDonald’s Labour government was stymied in
coping with the problem. With 2.5 million unemployed, the unions wouldn’t
surrender unemployment benefits.
A few days before the May report was published, Monty Norman left the bank
“feeling queer.” A year before, tired and wrung out, he had taken a two-month
vacation in South America. Now haggard from overwork, the high-strung
Norman was ordered to bed by doctors. When he was again ambulatory, it was
recommended that he travel abroad to recover from his nervous collapse.
Norman was temporarily replaced by his deputy governor, Sir Ernest Harvey. As
a sterling crisis loomed, Jack Morgan and Teddy Grenfell decided to smuggle
Norman out of England. Fearing he might break, the House of Morgan plotted
with British authorities to place him in temporary exile. After clearing Norman’s
removal with Edward Peacock, a Bank of England director, Grenfell reported to
New York, “M.N. has not made any progress and it has been intimated to him
that he should keep away and leave No. 2 to run the show.”18 It is unclear
whether the doctors were part of this scheme or whether they were invoked as a
cover for the operation.
One marvels at both Morgan’s imperial hauteur and the tender solicitude for
Norman. The bank wished to banish him with dignity. Jack telegrammed with a
gesture of royal magnanimity: if he wished, Norman could take the Corsair IV
anywhere in Europe, North Africa, or the Far East, attended by a doctor of his
own choosing. “There are rooms for six beside himself,” Jack told Grenfell, “and
for all the servants he could want.”19 Norman was steaming to Quebec when
Jack’s message came by radio, and he declined the “glorious offer.” To scotch
rumors of a bankers’ cabal, he wanted to avoid the United States altogether. He
recuperated at the Chateau Frontenac, where he also conferred with George
Harrison. In exile, Monty was spared the need to take the ax to his beloved gold
standard, and Grenfell said afterward he wouldn’t have been able to withstand
the strain.
The House of Morgan had helped Britain back onto the gold standard in 1925
and now underwrote a last-ditch effort to save it. Prime Minister Ramsay
MacDonald and Philip Snowden knew the pound couldn’t be defended without a
foreign loan. New York and Paris owned most of the world’s gold, and George
Harrison suggested a joint U.S.-French loan. It fell to 23 Wall to keep
MacDonald informed of Wall Street opinion vis-à-vis British chances for a
credit. The messenger was Teddy Grenfell, who had triple authority—as a Bank
of England director, a Conservative member of Parliament from the City, and the
senior Morgan Grenfell partner. Pitiless toward Labour politicians and staunchly
opposed to their program of nationalizing industry, he had a scathing opinion of
MacDonald, whom he found coarse and gutless. “The only white thing about
him is his liver, and the only portion of him that is not red is his blood.”20 In
early August, Grenfell warned MacDonald that halfway measures wouldn’t do
and that a British loan from Wall Street would be dimly received unless he took
courageous action and cut the budget deficit. Sensing a crisis in the offing,
Grenfell tracked down the Conservative leader, Stanley Baldwin, then in France,
and suggested he return to England at once.
Depending on one’s viewpoint, Ramsay MacDonald’s story in 1931 is either
that of a farsighted prime minister who nobly sacrificed ideology to the national
good or that of a blackguard who betrayed his party and platform to satisfy the
foreign bankers. (There are striking parallels between MacDonald’s actions and
Grover Cleveland’s alienation from his Democratic followers during the 1895
gold crisis.) A fiery, opinionated socialist, MacDonald had taken office in 1929
promising to fight unemployment, and he enacted unemployment benefits that
became sacred to the trade unions. For all his rabble-rousing, however, he had a
true-blue Englishman’s faith in sterling as the medium of world finance. So his
dilemma was stark in August 1931. Foreign bankers insisted that he close the
budget gap as the precondition for a loan. But any such austerity talk brought
outcries from Labour ministers, who saw it as a betrayal of their followers to
appease rich bankers.
Speaking for Wall Street, Grenfell talked bluntly to MacDonald. “We are all
getting tired of promises,” he warned in mid-August.”21 Grenfell watched
MacDonald warily, suspecting he would opt for expediency. As with Churchill in
1925, the Morgan partner took a rather mordant view of his target: “The P.M. is
at last alarmed but he is so conceited and fluffy headed that it will be difficult to
keep him up to the scratch.”22 He greatly underestimated MacDonald. When
trade unions proved intransigent about cuts in unemployment benefits,
MacDonald, angered by their obstinacy, was converted to Grenfell’s cause.
Many of his own ministers dug in their heels and resisted cuts in the dole.
The next steps in the crisis were intricate. The Bank of England sounded out
the New York Fed on whether Chancellor Snowden’s compromise plan for
budget cuts would guarantee a Wall Street loan. MacDonald was afraid his
cabinet would be offended by the idea of consulting New York bankers and
wanted to test opinion covertly. George Harrison of the New York Fed referred
the Bank of England to Morgans.
Throughout the crisis, J. P. Morgan and Morgan Grenfell had a secret back
channel with the Bank of England. As Grenfell explained, “If the Prime Minister
were to tell his Cabinet that he had already exposed his plan to foreign bankers
and asked for a loan his Cabinet would be much incensed. . . . You must
understand that neither Prime Minister nor his Cabinet have ever seen any of the
cables between J.P. Morgan & Co. and Morgan Grenfell though many of them
have been shown to Governor Norman and Deputy Governor.”23 On August 22,
1931, Harrison received a cable from the Bank of England outlining the new
compromise budget that MacDonald would discuss with his cabinet on Sunday,
August 23. The prime minister wished to know whether they could be sure of a
New York loan if the cabinet adopted it. Harrison showed the cable to George
Whitney and other Morgan partners, who had gathered at the Glen Cove home of
partner Frank D. Bartow.
This backdoor intrigue set the stage for a showdown between MacDonald and
his cabinet. That Sunday evening, the cabinet ministers paced through a warm
twilight in the garden of 10 Downing Street. They had awaited New York’s
verdict since noon. Morgan partners pored over figures calling for £70 million in
budget cuts—including a 10-percent dole cut—and an extra £60 million in taxes.
Finally, at 8:45 P.M., Sir Ernest Harvey at the Bank of England called Downing
Street to announce a telephone message from New York. He offered to carry it
right over.
For MacDonald, the suspense must have been excruciating: his political career
hinged on the message. When Harvey arrived, MacDonald tore the cable from
his hand and rushed back to the cabinet. This split-second action was fraught
with historic consequence, for MacDonald didn’t stop to screen the contents of
the message or even ascertain the sender’s identity. He introduced it as being
from nameless New York bankers. The cabinet ministers assumed, wrongly, that
the message came from the New York Fed. It actually came from George
Whitney and was addressed to the Bank of England, not to the cabinet.
Coming upon the cable in Morgan Grenfell’s files, it is disappointing to see
the blandness of this government-toppling document. It briefly expresses
sympathy for a British credit but stipulates no specific budget cuts. It’s a sterile
document, as if the bankers who penned it were being extremely cautious. But
the cabinet ministers were hot and tired, and their nerves were frayed from
debate. They spied sinister meaning behind its final lines: “In the foregoing we
have as always given you the precise trend of our thought. Let us know promptly
as indicated above what the Government’s desires are and within 24 hours we
shall be able to give you our final judgment. Are we right in assuming that the
programme under consideration will have the sincere approval and support of
the Bank of England and the City generally and thus go a long way toward
restoring international confidence in Great Britain?”24
When MacDonald read these words aloud, there was such a commotion in the
cabinet room that Sir Ernest Harvey heard it outside, and he later recalled that
“pandemonium had broken loose.”25 This last paragraph, clearly, was intended
for the Bank of England alone. To those present, it awakened old fears of dark
dealings between private banks in London and New York. The other stumbling
block was MacDonald’s apparent mention of a 10-percent dole cut. This wasn’t
mentioned by Morgans. Later, in reconstructing events, Grenfell told Lamont
that “the Cabinet have gone on repeating . . . that the American Bankers insisted
on a 10$$$ cut. . .. If he made mention of a 10$$$ cut as a condition MacDonald
must have invented it as it does not appear in your cable.”26 The cable supports
Grenfell.
MacDonald felt that he lacked the cabinet mandate to proceed with the
emergency budget cuts required to restore foreign confidence in sterling. The
bickering grew so fierce that at 10:20 P.M. he arrived at Buckingham Palace and
laid his resignation before King George V. Looking wild and distracted, he told
the king that “all was up.”27 In insisting upon the budget cuts, MacDonald set
himself against powerful segments of his own party, and he now knew he had
crossed some personal Rubicon. The king asked him to return to Buckingham
Palace the next morning along with the opposition leaders—Stanley Baldwin of
the Conservatives and Sir Herbert Samuel of the Liberals. To spread political
risks and ensure passage of the cut in unemployment benefits, the king invited
the three to form a coalition government. MacDonald would remain prime
minister of a government that was Tory at heart.
The new government cut the budget deficit with higher taxes on gasoline,
beer, tobacco, and income and lower salaries for civil servants. J. P. Morgan and
Company provided a $200-million revolving line of credit, and another $200
million came from France. Unfortunately, it proved impossible to restore
confidence in the pound. Many Labourites now regarded MacDonald as a traitor
and were vitriolic in their criticism of him. In September, the Communists
marched on Parliament and insisted that a cold-blooded bankers’ “ramp,” or
conspiracy, had imposed unfair hardship on British workers. Unemployed
workers rioted in Battersea and mounted police charged demonstrators on
Oxford Street. It was widely believed that the New York Fed had brought down
the government. London’s Daily Herald featured a photograph of George
Harrison on the front page, charging that a New York-led conspiracy had plotted
against the British welfare state. “The Daily Herald to-day discloses a startling
and apparently successful attempt by US bankers to dictate the internal policy of
Great Britain,” the headline read.28
One can picture Grenfell’s sardonic smile as he followed this
misunderstanding. To operate in the political shadows, to pass wraithlike through
a crisis and exert an unseen influence on large events—for Grenfell, these were
the perfections of his art. When he was pumped for information in Parliament,
he played the “village idiot,” he said. He confided to Lamont, “I believe it is the
opinion of the late Cabinet that George Whitney’s long telephone message. . . .
was a message from the Federal Reserve Bank. For the present, therefore, the
fall of Ramsay MacDonald will be put down to the domineering action of poor
George Harrison, who will not I imagine lose his sleep in consequence.”29
Did the House of Morgan bring down the Labour government? MacDonald
himself exonerated the bankers and stressed the need to maintain the place of
sterling in world finance. Morgan records confirm that the bank refrained from
recommending specific budget cuts. Yet it was no secret that Wall Street wanted
the dole cuts. And the broad body of American bankers had a veto over any big
British loan on Wall Street. There was no hidden Morgan agenda, only the usual
bankers’ mentality of favoring austerity and cuts in spending. It was Britain’s
choice to defend the gold standard, which placed it in the thrall of foreign
investors. Morgans merely expressed the consensus among bankers.
A few days after the Sunday cabinet meeting, Lamont spoke by phone with
Hoover, who gave qualified approval to the British credit. Since the large credit
would enlist 110 American banks, Hoover warned that Wall Street would be
accused of funneling money to Britain at a time of American distress.30 Not for
the first time, small-town America looked askance at Morgan assistance to
Britain, even as Britain’s left accused American bankers of treacherous
interference.
The coup de grâce to Britain’s gold standard came in September 1931, when
naval units at Invergordon, Scotland, struck against proposed pay cuts. This little
mutiny terrified foreign investors, who saw it as proof that the British public
would never accept an austerity budget. Sterling crashed again. Monty Norman
was sailing home from Canada on September 21, 1931, when England went off
gold. Hence, it would no longer redeem sterling for gold at a fixed rate: the old
imperial fantasy was dead, and the pound fell a shocking 30 percent. Keynes
exulted over gold’s demise: “There are few Englishmen who do not rejoice at the
breaking of our gold fetters.”31 But Monty Norman, arriving at Liverpool, was
stunned that the edifice he built was shattered. He took the train down to Euston
Station and had a temper tantrum when he arrived at the bank. Yet his associates,
Harvey and Peacock, believed that he would have done the same thing had he
been in charge. Twenty-five countries followed Britain off gold in a rush of
competitive devaluations.
In an Associated Press interview from London, Jack Morgan applauded
Britain’s departure from gold. When Lamont read this in New York, he was
thunderstruck. Hadn’t they just enlisted over one hundred banks to save that gold
standard? And wouldn’t those banks now feel betrayed? Lamont, who almost
never got angry, was beside himself.
Now came the moment that was destined to occur—when the power
relationship at the bank was revealed and even Jack Morgan would feel the sting
of Lamont’s pen. They had for some time a tacit deal: Jack would be semiretired
figurehead, and Lamont would retain executive control. Now in his early sixties,
Jack was an absentee boss who preferred golfing and yachting; he was aging and
no longer traveled on the Corsair without a surgeon aboard. In most banking
matters, control had slipped from his grasp.
Lamont had never challenged Jack openly. Now, in his fury, he confronted
him directly. So unprecedented was the accusatory letter he sent that he cosigned
it with Charles Steele, the other major partner in terms of capital share and an
old-timer from Pierpont’s days. Steele was a friend of Jack’s and was regarded
around the bank as a pleasant, wise old man.
It may be said that this letter of September 25, 1931, marks the moment when
the House of Morgan ceased operating as a family bank. Lamont wrote: “The
point that we must make to you—a point that we fear you little realize—is to
have you know fully the uncomfortable position in which the New York firm has
been placed before the whole American world and the public generally. What the
banks here, without exception, fail to understand, is why this enormous credit
operation should have been permitted to blow up in our faces over night so to
speak.”
Lamont reminded Jack of the solemn pledges to preserve the gold standard
that were made to participating banks:
It was upon that prophecy, made wreckage in just three weeks to the day, that we
were able to complete the group for the credit. There was, as we told you at the
time, great reluctance upon the part of many banks to join in the credit. . . . Now
the outcome has manifestly and inevitably diminished our prestige, not only
publicly but with the American banking community which has for years so
largely supported us in our efforts for the preservation here of British credit. And
this is a fact that every partner of the firm, which (under you and your Father
before you) has built up its American reputation upon careful judgment and
prudent dealing, must keep in the forefront of his mind for a long time to come. .
..
Now, we have said our say about the situation over here, and will try
not to allude to the subject again. But with you so far away, it has been we
have thought, quite important to acquaint you with the unpleasant facts
which have come to us all.32
Ten years before, Lamont would never have dared this. He had always dealt
with Jack gingerly so that he would never lose face. Now, however, Lamont’s
money and position gave him incontestable power. Still, nobody confronted a
Morgan without grave anxiety. At one point in the letter, Lamont gave Jack an
out: he hinted that the AP quote must have come at the end of a long interview
and he closed the letter “with much love from us all,” signing it “Faithfully.”
Lamont knew the letter was uniquely candid and bare-knuckled. After posting it,
he telephoned Jack to say no blame was intended and that he, Lamont, would
have acted the same under the circumstances. Yet the letter showed that a palace
revolution had taken place at the House of Morgan and that the Morgan family
had surrendered its absolute power. From that time onward, the influence of the
Morgan family would steadily diminish within the House of Morgan and then all
but disappear.
the political skies darkened in 1931, Tom Lamont seemed blind to the
spread of political extremism and militarism around the world. This was partly a
reflection of his innate optimism, his almost instinctive faith in the future. He
kept thinking the Depression couldn’t get any worse, that the world would
suddenly return to its senses, that the dictators would be held in check. The
gregarious Lamont often found it hard to credit people’s malevolence and was
reluctant to probe beneath their reassuring smiles.
This blind spot was especially apparent with sovereign clients, where a
banker’s self-interest bolstered his preference for looking on the bright side of
things. Partisan in behalf of clients, he tried to keep their reputations as
AS
unblemished as that of the House of Morgan itself. Their good name was
especially vital in the Depression’s volatile market for foreign bonds.
Unfortunately, a concern with the financial standing of foreign states could slip
over into questionable dealings with them. In extreme cases in the 1930s, the
House of Morgan would function as an unfettered government in its own right,
conducting a secret foreign policy at odds with that of Washington.
As fiscal agent for the imperial Japanese government in the late 1920s,
Lamont had devotedly served his client. For a Western banker, he had achieved
remarkable, unheard-of triumphs. After the mammoth earthquake loan, he had
floated loans for Tokyo, Yokohama, and Osaka, advised on a merger between
Tokyo Electric Power and Tokyo Electric Light, mediated between the Bank of
Japan and the New York Fed, and extended a $25-million credit that restored
Japan to the gold standard in January 1930. On the eve of the crash, the House of
Morgan was exploring a possible working link with the House of Mitsui, talks
that enjoyed official Japanese patronage. When it came to Japanese business,
Lamont took great pride in his accomplishments.
His early faith in Japan was understandable. When he first visited in 1920,
Japan stood on the brink of more than ten years of liberal, pro-Western party
rule. He developed distinguished and cultured friends, especially Junnosuke
Inouye, the commanding figure of Japanese finance, with whom he
corresponded frequently. Inouye was finance minister for a third time after 1929.
Humane and courageous, he was known for his conciliatory views on foreign
affairs and was often at loggerheads with the army. He represented the
enlightened antimilitarist forces in Japan. At Inouye’s request, Lamont would
lobby the New York press and argue Japan’s case. In 1928, after meeting with
editors of the New York Times, he told his friend, “I also told them of the patient
and tolerant attitude of your people toward China and the Chinese. . . . It
therefore is a matter of satisfaction to me to see how fair and sound the Times
has been.”33
The House of Morgan attained peak involvement in Japan just as that nation’s
experiment with liberal rule began to crumble. Following a wave of bank
failures and the stock market closing in 1927, it slipped into a depression before
most Western countries. That year, Japan was enraged by China’s boycott of its
goods in protest of foreign encroachment—a slap at national pride that Japan
would invoke during the Manchurian invasion. In 1930, the Morgan-assisted
restoration of the gold standard, under Inouye’s aegis, proved a masterpiece of
bad timing. It made exports expensive just as world trade contracted. When
Depression-plagued America economized on luxury clothes, Japanese silk
exports plunged. Silk was still a staple of Japan’s economy, with two of every
five families drawing income from it. Poverty spread throughout the countryside,
breeding a vicious new strain of rural nationalism. Rice prices also tumbled. The
budding Japanese export boom was blighted by Western protectionism, feeding
xenophobia. These economic setbacks enhanced the power of the militarists,
who blamed foreign powers for Japan’s troubles. Militarism would be bloodily
manifested in Manchuria.
The Japanese had long coveted Manchuria, that resource-rich north-eastern
corner of China. Whenever problems beset Japanese society—whether
overpopulation, too great a reliance on foreign raw materials, or the need for
new export markets—militarists saw China as the solution. They claimed
Manchuria almost as a matter of divine right. China was still fragmented and
chaotic, with warlords ruling parts of the country, and it appeared to be easy prey
for aggressors. It was weakened by a civil war that had culminated in 1927 with
Chiang Kai-shek’s defeat of the Communist rebels under Mao Tse-tung. By
treaty with China, Japan controlled the South Manchuria Railway and even
stationed a garrison in the region. This treaty gave the Japanese militarists a
legitimate cover behind which to carry out their plunder. Japan’s Kwantung army
plotted to use Manchuria as the base for military expansion in China.
In many ways, the House of Morgan shared Japan’s jaundiced view of the
Chinese, a common one in Western financial circles. China was unpopular on
Wall Street and in the City. It was prone to default and adept at playing foreign
bankers off against each other. Ever since the abortive China consortium under
Woodrow Wilson, Lamont had looked upon the Chinese as wily and duplicitous.
He perceived them less as victims of foreign intruders than as two-faced
opportunists.
It was an easy attitude to assume. Japan was a major Morgan client, and no
business came from China, which was still in default on a substantial portion of
its foreign debt. (National City Bank, on the other hand, did a thriving business
in China, which generated almost one-third of the bank’s profits in 1930.) So
Lamont was quick to find merit in Japanese claims that Manchuria was
economically indispensable, lay well within her sphere of influence, provided a
buffer against bolshevism, and had been won with Japanese blood and treasure
in the Russo-Japanese War of 1905. With billions of yen invested in Manchuria
and millions of Japanese living there, some nationalists saw the region as a
simple extension of Japan.
In mid-1931, while the West was distracted by the Credit Anstalt failure and
the sterling crisis, the Kwantung army set in motion a plot to seize Mukden and
other Manchurian towns. On September 18, it launched a surprise raid against
Chinese barracks in Mukden; by the next day, the city had fallen to the Japanese.
As a pretext for this aggression, the Japanese military manufactured stories of
Chinese assaults against the Japanese-controlled South Manchuria Railway—
stories that were later exposed as fraudulent or exaggerated. Emboldened by
popular support in Japan, the military flouted civilian officials, such as Inouye
and Foreign Minister Kijuro Shidehara, who opposed the use of force. Japan’s
Foreign Office was afraid that if it tried to rein in the Kwantung Army, it might
face an armed revolt in the ranks. As fifteen thousand Japanese troops swarmed
across Manchuria, diplomats lamely said that the moves were temporary and that
the troops would be evacuated shortly. As historian Richard Storry said, these
were “weeks of public embarrassment and secret humiliation for the Wakatsuki
government.”34
Stunned by the Mukden raid, Secretary of State Henry L. Stimson swiftly
protested to Japan, and Hoover later called it “an act of rank aggression.”35
Financial markets clamored for an explanation. As finance minister, the proud,
dignified Inouye had to issue a statement. He was in a precarious spot, for he had
spearheaded cabinet opposition to reinforcing troops in Manchuria. He was also
identified with demands for cuts in the defense budget, which earned him the
lasting enmity of the military (much as Dr. Hjalmar Schacht’s faith in oldfashioned balanced budgets would finally doom him with the Nazis).
Inouye consoled financial markets with an amazingly artful statement about
Mukden. The New York Times printed it verbatim on October 22 in a dispatch
with a Tokyo dateline. Entitled “INOUYE SAYS JAPAN IS EAGER TO RETIRE,” it
became the statement that defined Japan’s position for Western financial
markets. Observant readers must have been struck by its clever analogies to the
Panama Canal, its quoting of Daniel Webster, and its sure feel for American
sensibilities:
A clear understanding of the present state of affairs in Manchuria
shows that the question is simply one of self defense. A long, narrow strip
of territory, along which runs the vital nerve called the South Manchuria
Railway, is and has been by treaty arrangements since the Russo-Japanese
War of 1904-5 under the complete administration of Japan. By treaty with
Russia, duly recognized and adopted by China, Japan administers this
“South Manchuria Railway Zone”—polices and protects it much as the
United States Government polices and protects the Panama Canal Zone.
On the 18th of September last, a night attack was made on this zone by
regular Chinese troops, and the railway line was destroyed. It was evidently
necessary for Japan to take strong and immediate steps. When points under
the protection of one’s army are invaded by regular troops, and the extent of
the threatened invasion is utterly unknown, the obvious means of self
defense is to proceed at once to the headquarters of the offending troops.
The emergency was one which, in Mr. Webster’s classic words, was
’instant, overwhelming, leaving no choice of means, and no moment for
deliberation.’
The middle section of the statement portrays Japan as saving Manchuria from
anarchy. It brushes aside as “minor military measures” the actions taken at
Mukden. The closing is forceful:
In the final analysis, there is nothing in the situation that should create
a war and the whole affair has been magnified beyond reason in being
deemed an actual danger to the peace of the world. The Japanese, as
repeatedly stated, have no intention whatsoever of making war on China.
On the contrary, the Japanese Government and people entertain the
friendliest feelings towards the Chinese. They are probably more anxious
than any other nation of the earth could possibly be, to maintain friendly
relations with the Chinese.36
The press release was actually drafted by Tom Lamont. It was issued, with
only cosmetic changes, by Japan’s Ministry of Finance. (The preceding is quoted
from the original in Lamont’s files.) The Japanese wanted Lamont to release the
statement himself, but he replied that Morgans would be thought biased and
might offend the Chinese—an understatement. Perhaps he also feared his
reputation among American liberals would be blackened by any revelation of his
authorship; as a former champion of the League of Nations, he probably didn’t
want to side publicly with an aggressor. To assuage the Japanese, he explained
that if Inouye “will let me know what day he plans to issue the statement, I will
arrange to have it gain extra publicity here.”37
Lamont now found himself in stark opposition to Washington’s policy and
faced the dilemma always latent in his role as a banker cum diplomat. Why did
he conspire with a foreign power in a military action condemned by the U.S.
government and the League of Nations? Could he have accepted, at face value,
Japan’s story about Manchuria? Reporters in China pointed out that versions of
the Mukden incident originated with Japan’s military and were suspect. There
were also widespread suspicions of a staged incident, a premeditated invasion.
As the London Times said on September 21, the Japanese army, three days
before taking Mukden, had conducted “something like a dress rehearsal” for the
invasion, and “though it is reported that the incident of the South Manchuria
Railway was the cause of the developments, the truth is that the whole
movement was on foot before the alleged incident occurred.”38 There was, in
short, plenty of evidence to give a reasonable man pause. Add to this the clear
public impression that the cabinet was being duped by the army, and Lamont’s
alacrity is puzzling.
Cynicism toward China certainly explains much of the Morgan sympathy for
the Mukden attack. Russell Leffingwell, in a hot-blooded letter to Walter
Lippmann, said the indignation over Mukden was entirely misplaced. “It is
grotesque for the League or for America to interfere on the side of Chinese
raiders and revolutionaries, who have kept their people in war and fear and
misery all these long years; and on the side of red Russia; and against the side of
Japan, who in pursuance of her treaty rights has been keeping order in
Manchuria and maintaining the only safe-asylum open to the fear-ridden
Chinese.” He hoped the Japanese would “thumb their noses” at any League of
Nations or U.S. protest against its action.39
Along with his secret work for Mussolini, the Mukden incident is probably the
most disturbing episode in Lamont’s career (although nobody knew about it
then). Was he trying to impress the Japanese with elite Morgan services? Or was
he simply trying to maintain the value of Japanese securities? He undoubtedly
wanted to shore up Inouye’s tenuous position in the government. The finance
minister had to demonstrate to the military that he wouldn’t betray or work
against it. In fact, in November, Lamont warned the Japanese that if Inouye were
expelled from the cabinet—as the military favored—there would be a “distinct
chill” on Wall Street and in the City.40 But if Inouye felt a need to appease the
military, why did Lamont join him?
As with Mussolini, Lamont was going beyond public relations to something
approaching propaganda for a foreign power. It was a strange new application of
the Gentleman Banker’s Code of absolute loyalty to one’s clients. Any banker
could underwrite securities, but only Lamont could lobby politicians, shape
newspaper editorials, and sway public opinion. The Mukden press release
exposed the dangers in having bankers act like politicians and adopt the same
proprietary feeling toward foreign governments as toward industrial concerns. It
pointed up the perils of blurring politics and finance in the Diplomatic Age.
If Lamont were truly taken in by Mukden, then he was soon rudely stripped of
his illusions. In December 1931, a less liberal Japanese cabinet took power, and
Inouye was replaced by Korekiyo Takahashi, who promptly took Japan off the
gold standard. In late January 1932, the world was horrified by Japanese
bombing of Chinese civilians in thickly populated suburbs of Shanghai. Once
again, the Japanese blamed Chinese provocation. The terrorist tactics were far
more naked than those used in Mukden, and the evidence of brutality more
graphic and abundant. Newsreels brought shocking pictures of the carnage into
American movie theaters. Lamont was so dismayed he told his friend Saburo
Sonoda of the Yokohama Specie Bank that Japan could no longer raise money in
American markets—so ghastly was the impression left by Shanghai.41 For the
House of Morgan, Shanghai initiated a slow process of disenchantment. A
chastened Leffingwell wrote to Teddy Grenfell, “I confess to having had a good
deal of sympathy with the Japanese in Manchuria, though none at all with the
Japanese at Shanghai.”42
Now Lamont was to absorb one stunning blow after another. Rightwing
terrorism—which had already claimed the life of Prime Minister Hamaguchi in a
1930 shooting—turned on the world of finance. One by one, Lamont’s Japanese
friends were killed. During the Shanghai fighting in February, he received a
telegram from Sonoda that said: “WITH SORROWING HEART INFORM YOU OF
ASSASSINATION AND DEATH OF MR. I. INOUYE IT SEEMS [AS] IF A GREAT LIGHT HAS BEEN
EXTINGUISHED AND MY DEAR COUNTRY IS FALLING INTO DARK DAYS.”43
Inouye, sixty-three, was in the midst of a general-election campaign. As leader
of the Minseito, he was expected to become the next prime minister. As he
stepped from his car at a suburban Tokyo school, a twenty-two-year-old rural
youth stepped from the shadows in a tattered kimono and black felt hat. He shot
Inouye in the chest. The assassin was a member of the secretive, superpatriotic
Blood Brotherhood, a group of fanatic young nationalists. At the police station,
he boasted of his deed and blamed rural poverty on Inouye’s deflationary
policies. Speaking to reporters at the Imperial University Hospital, Inouye’s
somber, dry-eyed widow explained that she had readied herself for this moment
while her husband was in the cabinet.
Lamont was profoundly upset; after all, it was Inouye who gave him hope that
the old illustrious families and their liberal allies could keep militarism at bay.
He wrote a touching letter of condolence to his friend Sonoda: “Such a gentle
soul he was—it seems the more inexplicable that his end should be like this.”44
The more Lamont resisted the truth about Japan, the more forcibly it intruded.
A few weeks after Inouye’s assassination came the murder of Lamont’s other
major Japanese friend, Baron Takuma Dan, the MIT-trained mining engineer and
chief executive of Mitsui, who had hosted him at his villa in 1920. Baron Dan
was shot as he emerged from his car at the white marble Mitsui Bank. Again the
assassin was a rural youth and was apparently also a member of the Blood
Brotherhood. Lamont wrote to Baron Dan’s family, recalling the 1920 trip: “I
had thought at times of him as a poet in business and this impression came to me
as he showed me his house and garden and we stood together looking at
Fujiyama, a majestic picture towering above a superb landscape.”45
Baron Dan’s killing was an act of revenge against the House of Mitsui, which
rightists had accused of treacherous profiteering in the so-called dollar-buying
scandal. After England left the gold standard in September 1931, Mitsui and
other zaibatsu banks expected the yen to be forced off gold, too, an effective
devaluation. So they furiously sold yen and bought dollars. These foreignexchange transactions netted Mitsui an estimated $50 million. But they also
triggered a patriotic uproar about banks speculating against their country’s
currency. The issue proved an emotional one during the 1932 election. In the
growing atmosphere of political extremism, many Japanese sympathized with
Inouye’s and Baron Dan’s assassins, who received lenient sentences. Both were
released from prison within a few years.
Lamont didn’t readily admit error and didn’t know how to abandon clients. By
now, the strong rightward shift of Japanese politics was evident. The Kwantung
army had overrun Manchuria, creating the puppet state of Manchukuo in March
and installing Pu Yi, the last Manchu emperor, as its pliant figurehead. The
incident at Mukden, the bombing of Shanghai, the murders of Inouye and Baron
Dan—these events should have opened Lamont’s eyes. He could no longer plead
ignorance. His files from early 1932 do reveal a deep displeasure with the
Japanese as he warned them not to repeat the Shanghai error, which had
destroyed any sympathy they still had on Wall Street.
Nevertheless, that spring, in a bizarre turn, Lamont and Martin Egan drifted
back to a pro-Japanese stance. The two had become close friends with Count
Aisuke Kabayama, who had been educated at Princeton, was married on Long
Island, and was close to Emperor Hirohito. Kabayama’s grandfather had been an
admiral and a governor of Taiwan. Lamont and Egan encouraged him to set up a
Japanese information bureau in America on the Mussolini model and proudly
briefed him on their Italian work. In the late spring, Egan went to Japan for talks
about Manchuria. When he returned talking about “banditry and disorder in
Manchuria” and blaming China for hostilities, he sounded like a Japanese
militarist.46
The House of Morgan no longer knew which master it served—America or
Japan. A few days later, on May 15, 1932, another political murder blackened
Japan’s image: the aging prime minister, Tsuyoshi Inukai, was gunned down in
his official residence by nine young army officers, probably because he wanted
to curb the military. He was replaced by Admiral Makoto Saito. It would be the
end of party government in Japan until after World War II.
In the fall of 1932, Lamont had to confront the unpleasant truth about
Mukden, the knowledge that his press release for Inouye had been a hollow
piece of propaganda. The League of Nations had dispatched an investigative
commission to the Far East under Lord Lytton. Even before the Lytton report
was endorsed by the League, Lamont’s assistant, Vernon Munroe, dined one
evening with General Frank McCoy, the commission’s American member. The
next morning, Munroe told Lamont, “The General said there was a grave
question as to whether there was any explosion, that the Japanese had never been
able to explain how the regular trains continued to run immediately after the
explosion was supposed to have taken place and the more they had explained the
more of a contradiction they had gotten into.”47 A month later, the Lytton report
condemned Japanese aggression as violating the League’s Covenant and branded
Manchukuo a puppet state. Although the report was critical of Chinese
provocations, Japan walked out of the Assembly of the League and brazenly
tightened its grip on Manchuria.
By this point, Lamont was in a quandary. He wanted to maintain a belief in
Japan’s good intentions amid overwhelming, contradictory evidence. To sort out
his feelings, he sat down and wrote a memo marked “Secret and Strictly
Confidential.” Whether he ever circulated it is uncertain, but it shows a man
fleeing reality. “These are entirely my private thoughts,” it starts out, then
continues, “American suspicions as to Japan’s motives are essentially these: that
Japan has aggressive designs on the Asiatic Continent and that Japan may even
be courting war with the United States—which are not true.” To correct such
misconceptions, he recommends a joint U.S.-Japanese declaration on trade and
peaceful relations. The conclusion is a desperate pipe dream: “If such a joint
declaration can be made, all war talk will immediately be silenced, the
psychology of men will undergo a change and whatever question may arise
between our two countries will become capable of an easy solution.”48
It became progressively more difficult for Lamont to sustain any belief in
Japan’s imminent return to civil government. As lords of Manchukuo, the army
built huge dams and industries to strengthen the nation’s preparedness for war.
The new finance minister, Takahashi, known as the Japanese Keynes, boosted
military spending to almost half the Japanese budget. The liberalism of the
twenties, along with its foremost exponents, was dead.
In 1934, Lamont underwent a sudden change of heart. Once his eyes were
open, he felt fooled, and his trust turned to bitterness. He cut off subscriptions to
Japanese cultural groups, snubbed visiting Japanese dignitaries, and warned
Japan’s consul general that the Japanese should not mistake America’s peaceful
spirit for cowardice. When he heard rumors that the British cabinet might renew
an alliance with Japan, he lobbied against the move. He sent an impassioned
letter to Grenfell, which he expected to be passed around Whitehall: “In place of
the fair liberal government that existed in the first twenty years of this century
there has arisen a military clique which . . . if accounts from the liberal elements
in Japan are true, have been conducting itself a good deal as a lot of the young
German Nazis have been conducting themselves.”49
The Japanese army would continue to annex parts of northern China, a
campaign that in 1937 would culminate in the Sino-Japanese War and the
butchering of tens of thousands of Chinese civilians in the rape of Nanking. It
was a dismal, ironic denouement to Morgan involvement in China, which began
with Willard Straight’s dream of America acting as a buffer against Japanese
encroachment in Manchuria and ended with a senior Morgan partner serving as
apologist for that very action.
CHAPTER EIGHTEEN
MIDGET
THE Wall Street of 1932 was a dismal ghost town. Securities firms declared
“apple days”—unpaid vacation days each month that enabled destitute brokers to
go out and supplement their income by selling apples on the sidewalk. Apple
vendors appeared at the Corner. Downtown real estate was so depressed that
building companies defaulted; astute investors who bought their bonds became
the future owners of Wall Street. The misery extended everywhere. Riverside
Park was lined with Hoovervilles, and sylvan retreats in Central Park looked like
ragged hillbilly hollows. On Park Avenue, ten-room apartments that had been
occupied by financiers of the twenties now lacked tenants. The new, halfoccupied Empire State Building was mocked as the “Empty State Building.”
For aristocrats in private clubs, it was a time of often macabre mirth. The
Union League Club had a room wallpapered with stock certificates that were
rendered worthless by the crash. (They were peeled off by itchy fingers when the
market recovered.) After falling for over two straight years, the stock market hit
bottom on July 8, 1932. By that point, two thousand investment houses had
failed, and new underwritings stood at 10 percent of their 1929 peak volume. On
the Stock Exchange floor, listless traders invented games to kill time. Big Board
seats that fetched $550,000 before the crash now sold for as little as $68,000.
The major financial work was refunding old bonds at lower interest rates.
In 1932, almost thirteen million of America’s 125 million people were
unemployed. Two million roamed America searching for work, boarding boxcars
and sleeping in hobo camps. Hoover refused to renounce economic orthodoxy
and mount a vigorous attack on the Depression. Sometimes he flirted with
fanciful solutions to America’s despondency. At various times, he thought
America needed a good laugh, a good poem, a good song. He even approached
Will Rogers about writing a good joke to end panic hoarding. Hoover himself
wore a funereal expression. Of a White House meeting with him, Secretary of
State Henry Stimson said, “It was like sitting in a bath of ink.” And sculptor
Gutzon Borglum remarked, “If you put a rose in Hoover’s hand it would wilt.”1
Hoover had a way of minimizing the nation’s suffering. In 1932, he insisted,
“Nobody is actually starving. The hoboes, for example, are better fed than they
have ever been. One hobo in New York got ten meals in one day.”2
That spring, Jack Morgan was briefly roused to a rare act of public activism. A
believer in self-reliance, he cited as his favorite biblical text Ezekiel 2:1: “And
he said unto me, Son of man, stand upon thy feet, and I will speak it unto thee.”3
Jack construed this as God clucking his tongue at the welfare state. He preached
the old-time religion, telling the marquess of Linlithgow that honesty, integrity,
and economy were “the real solution of our troubles, most of which, in my
opinion, come from greed. ”4 He rallied to Hoover’s plea for private benevolence
instead of government intervention. In March 1932, he participated in a
fundraiser for the Block Community Organization of New York. Dressed in
dinner jacket at his Murray Hill mansion—with butler Henry Physick and other
servants listening at a rear-hall receiver—he broadcast a radio appeal for help.
“We must all do our bit,” he said, endorsing a plan by which workers contributed
small weekly sums to a fund for the jobless. A shy man who dreaded public
appearances, Jack’s cooperation reflected a fearful mood among the rich.
Lamont, meanwhile, helped the Red Cross raise money for farmers victimized
by the Midwest drought.
An outdated allegiance to classical economics tipped a postcrash recession
into seemingly insoluble depression. In late 1931, Federal Reserve Banks hiked
up their discount rate by 2 percentage points in two weeks. To balance the
budget, the Federal Revenue Act of 1932 almost doubled tax rates—again, the
perfect medicine to kill the patient. Not everyone at Morgans automatically
resisted experimentation. Throughout 1932, Russell Leffingwell, the resident
Democratic iconoclast and self-styled curmudgeon, laughed at those who feared
inflationary spending as “people who in an Arctic winter worry about the heat of
the tropics.”5 Yet Leffingwell’s own views spun like a weathervane in a high
gust, and at moments he reverted to budget-balancing orthodoxy. He told Walter
Lippmann that a public works program would only prolong the Depression, and
he doggedly maintained the need for the gold standard.
The major Hoover policy initiative of 1932, the Reconstruction Finance
Corporation, was a major boon to Morgan interests. It was set up to make loans
to banks, railroads, and other hard-pressed businesses. The previous year,
Lamont had told Hoover that the plight of America’s railroads was “the principle
impediment to domestic recovery.” The railroads were burdened with debt from
the twenties and couldn’t service their bonds. When the Van Sweringens
defaulted on their secret rescue loan in 1931, Morgans and Guaranty Trust
invited the brothers in for a frank chat, telling them that “we are, in effect, the
owners of all of their properties.”6 So the bank dropped its usual objections to
government bailouts when it came to railroads. Oris Van Sweringen said that he
and Mantis were “on the doorstep waiting for them [the RFC] to open.”7 The
Van Sweringens borrowed $75 million from the RFC, strengthening the case of
those who saw it as a welfare agency for the rich.
Hard times didn’t touch the splendor of top-drawer Morgan partners. If their
drawing rights from the bank—that is, their annual percentage take as partners—
were halved, they still had wealth left from the twenties. The main problem was
enjoying it free of guilt. What would Jack do with his new Corsair, big enough
to house a small village of hoboes? He decided, for decency’s sake, to mothball
it for a while, telling Cosmo Lang, the archbishop of Canterbury, “It seems very
unwise to let the ’Corsair’ come out this summer. There are so many suffering
from lack of work, and even from actual hunger, that it is both wiser and kinder
not to flaunt such luxurious amusement in the face of the public.”8 He offered to
charter the boat to John D. Rockefeller, Jr.
With over $20 million in his partnership account, Tom Lamont had time to
catch up on travel. Where Jack liked to sail with bishops and surgeons, Lamont
preferred the company of writers, intellectuals, and socialites. In the spring of
1931, he and Florence went on a leisurely Aegean cruise with Walter Lippmann
and his wife, and classics scholar Gilbert Murray. They were joined in Athens by
the John Masefields. There are photos of this Depression party aboard the
Saturnia. One shows Lamont in a double-breasted suit with pocket handkerchief
and a jaunty striped vest. His shrewd eyes crease into crow’s-feet as he gazes
into the camera. Small and balding, he has appraising eyes, sympathetic but
vigilant, that seem to take in everything. In another photograph, taken at the
captain’s table, the group is elegantly erect. Walter Lippmann looks dashing,
while Lamont peers attentively down the table. Dining in this wood-paneled
interior, with its fresh table linen, the group has a glitter that is remote from the
American dreariness of the moment.
The Lamonts arrived at Patras with forty-two pieces of luggage. The Greeks
treated them as visiting foreign dignitaries and followed protocol carefully. The
provincial governor carried Florence’s hatbox ashore while a Greek cabinet
representative (probably wondering to what depths he had sunk) inspected every
toilet on their hotel floor. Tom and Florence Lamont liked to affect a bohemian
innocence. During this idyllic trip, Florence reported, “We almost always have a
picnic luncheon because the hotels are most of them so bad. We sit in the sun
and read poems about Greece after luncheon.”9
If the Morgan world seemed to survive the Depression intact, the surface was
deceptive. Between 1929 and 1932, the bank saw its net worth—its basic capital
cushion—drop with frightening speed, from $118 million to half that before
Hoover left office. Total assets plunged from $704 million to $425 million. Even
for the House of Morgan, these were staggering blows. The real casualties were
junior partners, who shared in the losses without having reaped the spectacular
bull market profits. The bank still recruited based on talent. As an official
Morgan history says, “The alternative of seeking additional capital by recruiting
new partners with more money than talent, thereby diluting the quality of the
firm, was deemed unacceptable.”10
The House of Morgan retained Pierpont’s paternalism. When salaries were
slashed by as much as 20 percent, the staff was told these cuts would be restored
before partners resumed full drawing rights from their capital accounts. When
the bank closed its employee dining room, it distributed cash allowances for
lunch. Staff families also got two free weeks each year at a rustic Morgan camp
in Maine. For the Morgan Grenfell staff, the Depression ennui was partly lifted
by Jack’s gift of a sports ground in Beckenham, with a cricket pitch, hard tennis
courts, trimmed lawns, and a tea pavilion. These touches inspired fierce loyalty
and a cultlike intimacy among employees. Their Depression suffering, if real,
was extremely modest compared with the unspeakable suffering beyond the
marble walls.
us consider 1932 politics, for the events that led to the Glass-Steagall Act
—the Banking Act of 1933—and the division of the House of Morgan were
rooted in that year. It was Herbert Hoover who first waged war on Wall Street
and prompted hearings that led to new banking legislation. There had always
been a slightly paranoid edge to Hoover’s dealings with his Morgan friends.
After staying at the White House in the summer of 1931, Dwight Morrow told
Lamont that Hoover was blue and felt “he had been trying to carry out the views
of the banks here in New York and yet had got rather cold comfort from them.”11
Lamont sent Hoover a note to cheer him up, yet there was an undercurrent of
uneasiness in his relations with the president.
Hoover’s relationship with the House of Morgan dated back to his days as a
mining engineer. In 1917, he acted as intermediary between Sir Ernest
Oppenheimer, who wanted to take public his Johannesburg gold-mining group,
and Morgans. To consolidate his new Wall Street tie, Oppenheimer insisted on
the word American appearing in the new company’s name. Thus was born the
Anglo-American Corporation, afterward Africa’s richest company. Evidently
Lamont thought this would inaugurate a series of mining ventures tapping
Hoover’s talents. As he told Morgan Grenfell, the Anglo-American deal was
LET
“part of a comprehensive plan involving association with Mr. Hoover in mining
ventures generally.”12 But Hoover reneged on the deal, and Lamont later
applauded Oppenheimer for ousting Hoover and engineer William Honnold.
“We never shall have any quarrel with [Oppenheimer] in regard to his feeling
about Honnold and/or Hoover,” Lamont informed London.13
Beyond this history, Morgans and Hoover were doomed to have policy
quarrels. Hoover felt straitjacketed by a Congress that cared little for Europe’s
troubles, favored buy-America campaigns, and lacked interest in inheriting
economic leadership from Britain. The House of Morgan, in turn, had European
clients to protect, and its internationalism was no less problematic for Hoover
than for his Republican predecessors. There were also clashing personal styles:
Hoover was brusque and humorless, while Morgan partners were silky
aristocrats.
In July of 1932, it looked as if the world economy might finally cast off the
twin burdens of German reparations and Allied war debt. At Lausanne,
European leaders reached a gentleman’s agreement that effectively ended the
debt charade; if they could stop paying off war debts, they would stop asking for
reparations. Lamont was jubilant, seeing this as an end to the economic warfare
that had been waged since Versailles. He dispatched Martin Egan to the White
House, not to advise Hoover to cancel the war debts outright but simply to
reexamine them.
Returning from Washington, Egan said he had never seen the president so
emotional about an issue. He had made a speech full of anger, self-pity, and
impotent frustration. “Lamont has this matter all wrong,” Hoover had insisted,
echoing widespread public sentiment. “If there is one thing the American people
do not like and will not stand for it is a combination of this kind against them. . .
. Lamont cannot appreciate the rising tide of resentment that is sweeping over
the country. . . . They are trying to ’gang’ us. . . . Maybe they have settled
German reparations but they did it the worst damned way they could.”14 He
wouldn’t extend his one-year debt moratorium and rejected French and British
proposals for deferring upcoming payments; he forced France to default. So on
the eve of Hitler’s advent, the Allies were squabbling over moldy financial
issues that had bedeviled them for years.
The Morgan-Hoover feud over debt was mild compared with their debate over
short selling on Wall Street. Moody and isolated, taciturn and stony-faced,
Hoover now shared the average American’s view of Wall Street as a giant casino
rigged by professionals. He saw the stock market as a report card on his
performance, and it showed consistently failing grades. He came to believe in a
Democratic conspiracy to drive down stocks by selling them short—that is, by
selling borrowed shares in the hope of buying them back later at a cheaper price.
The “bear raiders” first achieved notoriety in the 1930 suicide market. The
master was Bernard E. “Sell-’Em Ben” Smith, a twenties pool speculator who
was trounced by rising prices in 1929. That October, he suddenly came into his
own and whooped it up on the day of the crash, shouting “Sell ’em all! They’re
not worth anything.”15 Such tales convinced Hoover of malevolent forces at
work in the market. He began to compile lists of people in the bear cabal and
even claimed to know they met every Sunday afternoon to plot the week’s
destruction!16 Hoover’s obsession was fed by confidants. Senator Frederick
Walcott of Connecticut told Hoover that Bernard Baruch, John J. Raskob, and
other Wall Street Democrats were planning bear raids to defeat his reelection.
Hoover thought Stock Exchange officials should openly denounce the culprits.
In January 1932, he called Stock Exchange president Richard Whitney to the
White House for a verbal drubbing. He said short sellers were preventing an
economic rebound and warned that unless Whitney curbed them, he would ask
Congress to investigate the Exchange and possibly impose Federal regulation.
Whitney refused to admit any danger in short selling. Privately Morgan partners
mocked Hoover’s obsession as absurd and fantastic, but they couldn’t dissuade
him from his vendetta.
Although fearing that public hearings would dredge up “discouraging filth”
and sabotage recovery efforts, in 1932 Hoover asked the Senate Banking and
Currency Committee to start an inquiry into short selling. Wall Street bankers
were so upset that Lamont lunched at the White House with Hoover and
Secretary of State Stimson, trying to spike the inquiry. Hoover said destructive
short sellers had offset his beneficial measures, a remark that led to a heated
exchange about the hearings. “I tried to make clear to the President that if such
an enquiry was encouraged to run riot it would create nothing but uneasiness
throughout the country and would help to defeat the very constructive ends to
which he was leading us,” Lamont said.17
In April, the first witness was Richard Whitney, who called Hoover’s charges
“purely ridiculous.” Even as the hearings commenced, Hoover and Lamont were
secretly trading barbed remarks about short selling. Hoover blamed the bears for
everything—low public confidence, business stagnation, and falling prices.
Lamont’s reply was candid to the point of comic cruelty. Responding to
Hoover’s contention that “real values” were being destroyed by bear raids, he
asked, “But what can be called ’real value’ if a security has no earnings and pays
no dividends?”18 He blamed 99 percent of the market’s decline on poor business.
The press had a dandy time ridiculing the Senate bear hunt, which never
unearthed a Democratic conspiracy. Nevertheless, at the end of April, a
subcommittee broadened the hearings to include pools and market manipulations
of the 1920s. The machinations of the RCA pool were unfolded before the
public. Walter E. Sachs of Goldman, Sachs had to explain the losses of Eddie
Cantor and forty thousand other investors in the Goldman Sachs Trading
Corporation. Something curious now happened: as the hearings shifted from
present to past, memories of the crash grew in the public mind. At first, Main
Street smirked at the crash as a Calvinist thunderbolt hurled at big-city sinners.
Only now, when the crash was seen as a forerunner of depression, did public
rage against the bankers crystallize.
Amid the controversy, Hoover had to deal with a serious slump in the bond
market—where short selling was prohibited. Corporate America couldn’t cope
with the debt accumulated in the 1920s, much of it to finance takeovers. Many
bonds defaulted and in extreme cases dropped 10, 20, or 30 points between sales,
threatening the banking system. If savings banks couldn’t cash in bonds, they
might have no money to pay off depositors, possibly causing runs and failures.
The upshot was a Morgan-led operation to halt the bond market slide. Thirty-five
banks pledged $100 million to buy high-quality bonds in a pool nicknamed the
Stars and Stripes Forever. It was chaired by Lamont, who sported more titles
than the mikado during this period. The bank touted the patriotic nature of the
venture, but it was again that Morgan specialty—public service for profit. The
bank considered bonds seriously undervalued and had excess cash on hand
during the Depression. “If the organization of the Corporation . . . should have
any degree of reassuring effect upon the public so much the better,” J.P. Morgan
and Company told the Paris partners.19
Lamont kept Hoover posted on the pool. In the bond market operation, some
cynics spied a move to improve Republican prospects in the fall election—as if
Hoover would field his own hard-charging bulls against the bears. If so, the
strategy almost backfired on Hoover. Lamont used the pool as a bargaining chip
and threatened to disband it unless the short-selling hearings were canceled. In
the end, the pool went ahead and made a tidy profit. The hearings would drag on
and eventually assume dimensions unforeseen in early 1932. They would finally
take their name from a new subcommittee counsel, Ferdinand Pecora, appointed
in January 1933. The Pecora hearings would lead straight to Glass-Steagall and
the dismemberment of the House of Morgan.
IN
the autumn of 1932, Hoover presided over one last humiliation—a
nationwide banking crisis. Three years of deflation had eroded the collateral
behind many loans. As banks called them in, the business slump worsened and
produced more bank runs and failures. Before 1932, the thousands of bank
closings were mostly confined to small rural banks. Then, that October,
Nevada’s governor shut the state’s banks. There followed a frightening
crescendo of state bank closings—euphemistically called holidays—climaxed by
an eight-day closing of Michigan banks in February. The contagion spread so
fast that thirty-eight states had shut their banks by Roosevelt’s inauguration.
Between the November election and the March 1933 inauguration was a time
of paralysis and glowering hostility between Hoover and Roosevelt. Irritated,
beleaguered, and resentful, the president refused to undertake new initiatives
without Roosevelt’s cooperation; Roosevelt, on the other hand, wanted to wait
until he assumed full power. For the House of Morgan, it was a season of peril.
Through three consecutive Republican terms, it had probably enjoyed better
access to Washington than any other bankers in American history. Under
Hoover, the president was a telephone call away. Sometimes Morgan power had
seemed as awesome as crude left-wing propaganda would have it. Now the bank
combated threats to its survival as the political wheel came full circle.
As early as 1929, Hoover advanced the idea of separating commercial and
investment banking, a notion that now took hold. It appeared in a banking bill
introduced by Senator Carter Glass as early as 1930 and formed part of the
Democratic party platform in 1932. During the campaign, Roosevelt blamed
Hoover for the speculative binge of 1929 and the spate of foreign loans that left
a bloody trail of defaults. After Bolivia became the first Latin American debtor
to default in 1931, nearly every Latin American government followed suit.
After Hoover’s “bear raid” crusade, the president’s departure wasn’t mourned
at the Corner. Russell Leffingwell and Parker Gilbert formed a Morgan minority
that voted for Roosevelt. “The truth is,” Leffingwell confessed to Walter
Lippmann, “I can’t bring myself to vote for a desperate man who wishes to
continue desperate remedies for a desperate situation.”20 Nor was it self-evident
that FDR would emerge as an enemy. Genial and aristocratic, he chastised
Hoover as a big spender and advocated balanced budgets; he looked more bland
than bold. Leffingwell almost patronized Roosevelt, calling him “a pleasant,
kindly, well-meaning chap with a pleasing smile.”21
Socially, FDR fit the Morgan mold far more than Hoover. Leffingwell—who
knew Roosevelt from his own Treasury days, when Roosevelt was in the Navy
Department—excitedly set down his pedigree for Vivian Smith of Morgan
Grenfell. He noted Roosevelt’s Groton and Harvard education, his Hudson River
upbringing and old New York Dutch ancestry, and his employment at the Wall
Street firm of Carter, Ledyard, and Milburn, which defended corporate clients
against antitrust actions. Leffingwell ended sarcastically, “All that is the
background of the man who is a peril to American institutions according to
Hoover the foreign mining engineer.”22 Lamont also knew Roosevelt, having
rented his East Sixty-fifth Street house. Before the inauguration, he phoned him
and busily dashed off “Dear Frank” letters.
If the winter interregnum suggested possible good relations, there were also
warning signs. Late in the summer of 1932, Leffingwell and Roosevelt had an
exchange that previewed, in miniature, the titanic feud to come. In August,
Leffingwell sent “Frank” a note deriding the banking reforms being advanced by
Carter Glass; in it, he tried to strike a note of camaraderie and shared values:
“You and I know that we cannot cure the present deflation and depression by
punishing the villains, real or imaginary, of the first post-war decade, and that
when it comes down to the day of reckoning nobody gets very far with all this
prohibition and regulation stuff.”23 Far from indulging Leffingwell, Roosevelt
threw cold water in his face: “I wish we could get from the bankers themselves
an admission that in the 1927 to 1929 period there were grave abuses and that
the bankers themselves now support wholeheartedly methods to prevent
recurrence thereof. Can’t bankers see their own advantage in such a course?”24 It
would be the tragedy of the House of Morgan that it couldn’t see the advantage
in such a course. The public demanded a mea culpa for 1929, which the bankers
wouldn’t provide. As Leffingwell told Roosevelt, “The bankers were not in fact
responsible for 1927-29 and the politicians were. Why then should the bankers
make a false confession?”25 Yet such was Leffingwell’s disgust with Hoover’s
tariffs, isolationism, and reparations policy that he gladly voted for FDR.
The bank campaigned to slip Leffingwell into a Treasury post, which became
a litmus test of Roosevelt’s financial soundness. All aflutter, Monty Norman told
Lamont, “I shall wait to hear that R.C.L. is established before I can rest
happily.”26 When Senator Carter Glass was approached about taking the
Treasury secretary job again, he said he would want to hire two Morgan men and
former deputies: Leffingwell and Parker Gilbert.27 Walter Lippmann joined the
bandwagon, but Roosevelt cringed: “We simply can’t tie up with 23.”28 The
shorthand betrayed a knowingness that would work to the bank’s disadvantage.
Despite his failure to get a Treasury post, Leffingwell would remain a trusted
friend and adviser of Roosevelt’s and something of a black sheep on Wall Street
for his partial support of the administration.
The person who probably shot down Leffingwell’s trial balloon was Ferdinand
Pecora, the fifty-three-year-old former assistant district attorney from New York,
who took over the Senate’s Wall Street probe in January 1933. Smoking a blunt
cigar, his shirtsleeves rolled up, the hard-bitten Pecora captured the public’s
attention. For six months, the hearings had been stalled. Republicans and
Democrats, with fine impartiality, had feared fat cats of both parties might be
named and united in a conspiracy of silence. With Pecora as counsel, the
hearings acquired a new, irresistible momentum. They would afford a secret
history of the crash, a sobering postmortem of the twenties that would blacken
the name of bankers for a generation. From now on, they would be called
banksters.
Even before Roosevelt’s inauguration, Pecora turned his investigative
spotlight on the National City Bank, showing eminent bankers in sordid poses,
particularly the bank’s head, Charles E. Mitchell, a member of the Black
Thursday rescue squad. Through Pecora, the public got a view of bankers
scheming while supposedly protecting the public. Pecora revealed that the $12million Morgan loan to preserve National City’s merger with the Corn Exchange
Bank had represented more than 5 percent of Morgans’ net worth, sticking the
bank with a substantial loss. It was also disclosed that to buffer crash losses at
National City, one hundred top officers had borrowed $2.4 million, interest free,
from a special morale loan fund—loans never repaid.
Pecora also studied the operations of the National City Company, whose 1900
salesmen had unloaded risky Latin American bonds on the masses. It emerged
that in touting bonds from Brazil, Peru, Chile, and Cuba to investors, the bank
had hushed up internal reports on problems in these countries. After bank
examiners criticized sugar loans made by the parent bank, the securities affiliate
sold them as bonds to investors, an example of how commercial banks might
palm off bad loans through securities affiliates. Pecora cited the case of an Edgar
D. Brown of Pottsville, Pennsylvania, whose National City salesman had pushed
him into “a bewildering array of Viennese, German, Peruvian, Chilean, Rhenish,
Hungarian, and Irish government obligations.”29
Another supposed hero of Black Thursday was Albert H. Wiggin of Chase, a
poker-playing clergyman’s son who sat on fifty-nine corporate boards. He was
also exposed as being up to his ears in mischief. For six weeks in 1929, he had
shorted shares of Chase stock and earned several million dollars; the speculation
was backed by an $8-million loan from Chase itself. For good measure, Wiggin
had set up a Canadian securities company to avoid federal taxes. The stories of
Chase and National City showed the extent to which the traditional distinction
between savings and speculation had disappeared in the 1920s—a distinction the
Glass-Steagall Act would seek to restore.
The Pecora findings created a tidal wave of anger against Wall Street, and
against this backdrop Roosevelt vetoed the Leffingwell nomination. As people
followed the hearings on their farms and in their offices, on soup lines and in
Hoovervilles, they became convinced that they’d been conned in the 1920s.
Yesterday’s gods were no more than greedy little devils. Even most of Wall
Street was shocked by this phase of the hearings. Senator Burton Wheeler of
Montana said, “The best way to restore confidence in the banks would be to take
these crooked presidents out of the banks and treat them the same way we
treated Al Capone when he failed to pay his income tax.” Even Carter Glass, a
staunch Morgan friend, joked nastily, “One banker in my state attempted to
marry a white woman and they lynched him.”30
When Roosevelt took office on March 4, 1933, he ran up a flag of
independence from Wall Street. That morning, Governor Herbert Lehman shut
New York’s banks, and Richard Whitney mounted the podium to close the Stock
Exchange. The financial massacre was complete: of twenty-five thousand banks
in 1929, some seven thousand had now failed. Amid this atmosphere of financial
ruin, a grim Roosevelt delivered a stinging indictment of the bankers: “The
money changers have fled from their high seats in the temple of our civilization.
We may now restore that temple to the ancient truths.”31
To offer advice on the banking crisis, Lamont had telephoned Roosevelt and
urged him to avoid drastic measures. This counsel reflected a faith not only in
market mechanisms but in political expediency. As J. P. Morgan and Company
cabled London: “There is great reluctance to contemplate any form of federal
action which it might be difficult later on to get rid of”32 Roosevelt brushed
aside Lamont’s tepid remedies and announced a sweeping week-long bank
holiday; over five hundred banks never reopened. Along with an emergency
bank bill, this tough action restored public confidence and revealed a new public
receptivity to emergency measures. Throughout the New Deal, the House of
Morgan would repeat the same political error: it would advocate marginal
reforms, which would be dismissed as self-serving. Instead of devising its own
alternative reform package, it settled for scare tactics.
Despite these early Roosevelt rebuffs, Hoover’s bleak record made even
Morgan bankers ripe for experimentation. Jack Morgan was at first ecstatic about
FDR. “Of course, it is quite possible that some of his cures may be wrong ones,
but, on the whole, things were so bad that almost any cure may do some good.
”33 In correspondence from the Morgan files of March 1933, the partners sound
remarkably like other frightened Americans: they, too, needed a savior. Hadn’t
they seen their own prescriptions fail? After Roosevelt’s March 12 fireside chat
and the reopening of the banks, 23 Wall reported with relief to Morgan Grenfell:
“The whole country is filled with admiration for President Roosevelt’s actions.
The record of his accomplishment in just one week seems incredible because we
have never experienced anything like it before.”34 The Stock Exchange soared
and posted a 54-percent gain for 1933.
The House of Morgan couldn’t see that, like a black speck on the horizon, the
Pecora hearings were a hurricane heading in its direction. During this false
honeymoon, the House of Morgan committed a famous act of apostasy: it
applauded Roosevelt for taking America off the gold standard in April. It was
hoped this would devalue the dollar, raise commodity prices, and reverse the
lethal deflation. A radical measure in ordinary times, it was less controversial in
1933. Harking back to greenback currency (currency with no metal backing) and
free-silver coinage, farmers and other debtors were reviving old inflationary
nostrums from the days of William Jennings Bryan. Roosevelt was under
pressure to choose some inflationary expedient. Gold was moving abroad in
large quantities, and there was fear it would contract the monetary base, feeding
deflation.
The House of Morgan provided intellectual support for leaving gold. Russell
Leffingwell lunched with Walter Lippmann and advised him on a newspaper
column favoring an end to a rigid gold standard. Leffingwell saw the need for
higher commodity prices. He also felt the downward drift of European
currencies had led to an overvalued dollar, hurting U.S. exports. After lunch,
Leffingwell said, “Walter, you’ve got to explain to the people why we can no
longer afford to chain ourselves to the gold standard. Then maybe Roosevelt,
who I’m sure agrees, will be able to act.”35 Lippmann let Leffingwell vet the
article and sharpen its fine points.
Leffingwell had great intellectual stature among the New Dealers. When
Roosevelt later accused Treasury Secretary Henry Morgenthau, Jr., of sounding
like Leffingwell, Morgenthau retorted, “I wish I had half his brains.”36 One of
the more radical brain trusters, Columbia professor Rexford G. Tugwell, noted
Leffingwell’s influence on Roosevelt in the gold decision. “Consulting widely
among New York acquaintances he regarded as public-minded—Russell
Leffingwell of the House of Morgan was perhaps the most trusted—he had
concluded that gold must be sequestered entirely, hoarding forbidden, and
shipment abroad prohibited.”37 The day after Walter Lippmann’s column
appeared, Roosevelt publicly advocated an end to gold. Through a series of
executive orders, he prohibited gold exports and hoarding. Congress in June
abrogated the clause in bond issues that mandated compulsory payment in gold
coin. Even Jack Morgan smilingly applauded the move. For those who
remembered Pierpont’s 1895 rescue of the gold standard and Morgan efforts to
put countries back on gold throughout the twenties, such statements were
wondrous to behold, proof that the safe nineteenth-century world of neoclassic
economics had been turned topsy-turvy.
Many financial experts were in a state of shock, as if the ship of state’s rudder
had been violently torn off. Budget Director Lewis Douglas intoned, “This is the
end of Western civilization.”38 Bernard Baruch felt a similar alarm at this sudden
turn in financial policy: “It can’t be defended except as mob rule. Maybe the
country doesn’t know it yet, but I think we may find that we’ve been in a
revolution more drastic than the French Revolution.”39 The perplexity was
greater in Europe, where bankers wondered why the United States had
cheapened its currency despite a trade surplus and an adequate gold store. When
informed that Monty Norman thought the move would plunge the world into
bankruptcy, Roosevelt—who called him Old Pink Whiskers—just laughed. The
gold embargo showed that both the United States and England had renounced
world leadership in favor of domestic ends. The world was adrift in a full-blown
war of economic nationalism, fought with competitive currency devaluations.
For people schooled in the old economic verities, it was a disorienting new
world. Bernard S. Carter, a Morgan et Compagnie partner in Paris, told J. P.
Morgan partners how a Romanian banker walked into Morgans’ place Vendôme
office and launched into the following diatribe:
Here are the 3 great financial countries of the world, who have been preaching
the sanctity of contracts to us ever since the war, and who have now all resorted
to repudiation of one kind or another in their turn. First England goes off the
gold standard, then France refuses to pay her debts to America, and now
America goes off the gold standard. I guess we Roumanians are not such crooks
after all!40
By summer, Roosevelt was chiding the gold standard and other “old fetishes
of so-called international bankers” and praising the brave new world of managed
national currencies.41 Although by background an internationalist and a strong
supporter of the League of Nations, FDR pursued domestic recovery at the
expense of global economic leadership. More cosmopolitan than Hoover, he had
a vestigial fear of British finance. He ended British war-debt payments, as
Leffingwell had advised, but couldn’t suppress a view of British bankers as a
devious bunch out to trick the Yanks. “The trouble is that when you sit around
the table with a Britisher he usually gets 80$$$ of the deal and you get what’s
left,” Roosevelt explained.42
So the early New Deal threatened the House of Morgan in two ways: the
Pecora hearings were exposing practices that could bring fresh regulation to Wall
Street. And the White House attitude toward European finance augured an end to
the House of Morgan’s special diplomatic role of the 1920s. After an incestuous
relationship with Washington in the twenties, the bank would suffer the curse of
eternal banishment.
spring, FDR urged the Senate Banking Committee to adopt a broader,
more amorphous mandate to investigate “all the ramifications of bad banking.” It
was nothing less than a license for a comprehensive inquest into Wall Street. The
committee turned to private bankers—whom Pecora defined as men “who make
their own rules and are not subject to examination”—with J. P. Morgan and
Company topping the list. It was too much to expect America’s richest bankers
to get off scot-free. What retrospective of the twenties would be complete
without the bank that epitomized the decade’s power? As a former Republican
party chairman said, “Never before in the history of the world has there been
such a powerful centralized control over finance, industrial production, credit,
and wages as is at this time vested in the Morgan group.”43 It was time for
Washington to storm the Bastille of Wall Street.
In Ferdinand Pecora, the committee’s $255-a-month counsel, history provided
a perfect foil for Morgan bankers. A Sicilian-born, anti-Tammany Democrat, he
had thick, wavy black hair mixed with gray, a jaunty grin, and an assertive chin.
A devoted Bull Mooser in 1912, he had switched to Wilson’s progressive
Democrats in 1916. As assistant district attorney in New York, he took on tough
assignments—from bucket shops to crooked banks, the Police Department to
bail bondsmen—posting an 80-percent conviction rate. Even when his
prosecutorial manner was mild, he had a talent for taunts and withering asides.
He was also fearless and incorruptible and had rejected several offers from Wall
Street law firms. When he took over the Senate probe, he thought he would be
through before Roosevelt took office. Instead, the investigation went on until
May 1934, producing ten thousand pages of testimony that filled up eight fat
tomes.
At first, the House of Morgan snickered at the Pecora hearings, seeing them as
a circus. Lamont thought they were a political ploy “designed to acquaint a
curiosity-loving public with the nature and extent of our own banking
institutions.”44 With its fetish for secrecy, the bank tried to limit the inquiry’s
scope. On March 22, 1933, Lamont and counsel John W. Davis—the 1924
THAT
Democratic presidential candidate, dubbed the Morgan prosecuting attorney—
visited Pecora at his shabby, temporary offices at 285 Madison Avenue. Davis
had assiduously protected the House of Morgan’s rights as a private bank and
had written a New York State statute that exempted private banks from state
inspection. Pecora was striking at an ancient privilege of gentleman bankers—
keeping their capital position secret. On Davis’s advice, Lamont refused to give
a statement of Morgan capital, opposed examination of the bank’s records, and
insisted on the confidentiality of client accounts. As a close friend and nearneighbor of Jack Morgan’s and a fellow vestryman of Saint John’s of
Lattingtown, Davis was in high dudgeon at any insinuation of Morgan
dishonesty. He quickly elevated the affair into a matter of honor and
constitutional rights. Two days later, he told Pecora he was “very chilly” to his
request for five years of J. P. Morgan and Company balance sheets.
Along with Parker Gilbert, Lamont visited George Harrison of the New York
Fed and tried to enlist his influence for withholding the annual statements. Not
only did Harrison refuse, but in his diary he registered shock at the request.
Pecora interpreted the Morgan refusal to answer his questions as barefaced
defiance and waged war against the bank in the press and on Capitol Hill. He got
the Senate to pass a resolution enabling the committee to investigate private
banking—a timely reminder to Morgans that it remained unregulated only at
government sufferance. Pecora had won. For over six weeks, his sleuths worked
in a room at 23 Wall, sifting through records no outsider had ever before seen. In
the sole concession to Morgan eminence, investigators stopped at six each
evening, while their colleagues worked until midnight elsewhere on the Street.
As bank image maker, Lamont tried to soften any impression that he was
obstructing the investigation. On April 11, he wrote a clever letter to Roosevelt
vowing cooperation; the bank would make political hay by yielding to the
inevitable: “So far as this particular item is concerned, we haven’t the slightest
hesitation at any time in showing our balance sheet to members of the
Committee, and I may add that I think you would regard it as a highly
satisfactory one.”45 This last remark alluded to shared values, as if Lamont were
reminding Roosevelt of his patrician background.
Jack Morgan was especially enraged by Pecora. He believed implicitly in
Morgan integrity and interpreted any investigation, by definition, as a vendetta.
He unpacked a colorful array of ethnic epithets; at age sixty-six, he wasn’t about
to learn tolerance. Pecora was degraded to a “dirty little wop,” “a sharp little
criminal lawyer,” and “a 2nd-rate criminal lawyer.”46 It never occurred to Jack
that Pecora might uncover anything amiss; he, too, thought the hearings were
cooked up to pander to public voyeurism. He told the marquess of Linlithgow:
“The risk of finding anything crooked in our affairs, honestly looked at, is nil;
but it is taking a large part of the time of all the partners, and one whole firm of
lawyers, to go through all the bank history and get ready to answer [the
committee’s questions].”47 Lamont told his friend Lady Astor that he deplored
the “Spanish Inquisition” in Washington and the conduct of the “young native
Sicilian counsel, Ferdinand Pecora.”48 With such an inflated sense of virtue, the
Morgan partners marched blindly into the hearings.
As the partners prepared for their May appearance, the hearings took on a new
urgency. Sponsored by Senator Carter Glass of Virginia and Representative
Henry Steagall of Alabama, a bill was working its way through Congress to
separate commercial and investment banking. This would force large
commercial banks to give up their securities affiliates; deposit-and-loan business
would be severed from securities work. The political movement to punish Wall
Street was becoming a juggernaut. Nobody had expected securities reform to
dominate the early New Deal. But Pecora’s sensational findings pressured the
Roosevelt administration to take action against Wall Street.
Amid an upsurge of populist feeling in 1933, demagogues of the left and right
found the House of Morgan a convenient idol to smash. Responding to the
Pecora inquiry, Louisiana’s Huey P. Long gave a speech entitled “Our Constant
Rulers.” In it, he argued, against all evidence, that Roosevelt had stacked the
Treasury Department with Morgan men. Roosevelt, claimed Long, was no less
beholden to 23 Wall than Hoover: “Parker Gilbert from Morgan & Company,
Leffingwell . . . what is the use of hemming and hawing? We know who is
running the thing.”49
Threats to the bank went far beyond redneck demagogues or professors in
Roosevelt’s brain trust: they came from the banking community itself. In 1930,
the Chase bank had merged with the Equitable Trust to form the world’s largest
bank of its time. Winthrop W. Aldrich, a brother-in-law of John D. Rockefeller,
Jr., had succeeded the disgraced Albert Wiggin as Chase president in early 1933
and wanted to refurbish the bank’s image. To this end, he got behind the push to
divide commercial and investment banking. In March 1933, he took steps to spin
off the Chase securities affiliate, Chase Harris Forbes. Similarly, James Perkins,
who succeeded Charles Mitchell at National City, believed that its reckless stock
affiliate had nearly ruined the bank, and he, too, favored a sequestration of
financial functions. The bankers’ unity of the 1920s was breaking down into
furious backbiting and jockeying for advantage. According to Arthur
Schlesinger, Jr., “Aldrich’s action was interpreted as a Rockefeller assault on the
House of Morgan; and for a time he achieved almost the dignity of a traitor to
his class.” The counterattack came from William Potter of Guaranty Trust, who
criticized Aldrich’s proposals as “quite the most disastrous . . . ever heard from a
member of the financial community.”50 This division within the realm of
banking sped the passage of the Glass-Steagall Act.
The House of Morgan was the first private bank investigated by Pecora. After
three months of nonstop preparation, the Morgan entourage swept into a $2,000a-day suite of rooms at the Carlton Hotel attended by a small army of Davis,
Polk lawyers. Jack was to be the first witness. The night before, John Davis
rehearsed him with biting questions. Believing that Pierpont’s arrogance before
the Pujo Committee had harmed the House of Morgan, Davis advised the men
not to be coy, argumentative, or defensive. “I lined up the partners and held
school every day,” he later recalled.51 As star witness, Jack was awaited with
feverish anticipation. That morning, crowds ringed Capitol Hill to get seats in a
sweltering, overflowing Senate Caucus Room. On the way, Jack confided to his
chauffeur that he was afraid he would lose his temper. Charles Robertson sniffed,
“Oh, you would not lose your temper with the likes of them.”52 Restored to his
senses, Jack decided not to stoop to their level. No, he would conduct himself
with honor. He entered the Capitol accompanied by several tough-looking
bodyguards.
Shortly before ten o’clock on Tuesday morning, May 23, guards cleared the
way for Jack Morgan to enter the hearing room; he was flanked by Tom Lamont
and John Davis. Flashbulbs exploded and spectators buzzed as the world’s most
famous private banker stepped beneath the chandeliers and Corinthian pilasters.
Despite his legendary name, Jack, age sixty-six, was a mystery man to most
Americans, ghostly and insubstantial. He didn’t look fearsome. Over six feet two
with broad shoulders and an egg-shaped head, he was a balding, white-haired old
man with dark eyebrows. Within himself he might feel sheepish, but he had a
kindly smile and radiated a well-tailored poise in his three-piece suit and gold
watch chain. He and Pecora typified contrasting images—the imperturbable
Bourbon and the assertive immigrant.
Nobody was less eager than Jack to be dragged from his semiretire-ment. At
this moment of crisis, he reverted to the tradition upheld by three generations of
Morgans, the Gentleman Banker’s Code, first pounded into Pierpont’s head by
Junius sixty years before. Jack’s opening statement harked back to Pierpont’s
statement at the Pujo hearings, that character was the basis of credit:
The private banker is a member of a profession which has been practiced since
the middle ages. In the process of time there has grown up a code of professional
ethics and customs, on the observance of which depend his reputation, his force
and his usefulness to the community in which he works . . . if, in the exercise of
his profession, the private banker disregards this code, which could never be
expressed in any legislation, but has a force far greater than any law, he will
sacrifice his credit. This credit is his most valuable possession; it is the result of
years of faith and honorable dealing and, while it may be quickly lost, once lost
cannot be restored for a long time, if ever.
If I may be permitted to speak of the firm, of which I have the honour
to be the senior partner, I should state that at all times the idea of doing only
first class business, and that in a first class way, has been before our
minds.53
This was as clear a statement of principles as Jack could muster: this was his
birthright, what it meant to be a Morgan banker. Yet his attempt at candor
sounded strangely anachronistic to American ears. Jack was an old-school
banker, as out of place as an alchemist in the atomic age. Historian William E.
Leuchtenburg has said, “On the witness stand, Morgan appeared to have been
resurrected from some Dickensian countinghouse.”54 This was literally true, for
Jack was trained in late Victorian London and never abandoned its banking
folkways.
His black hair swept up in a pompadour, his chin jutting, Pecora jabbed the air
and posed aggressive questions; sometimes he even pointed his cigar at Jack.
Abiding by Davis’s advice, Jack didn’t joust with the attorney. He smiled
nervously, called Pecora “Sir,” and hardly seemed a world-devouring tycoon. He
breathed no fire, hurled no thunderbolts. The public saw the figure well-known
to friends and associates but seldom, if ever, seen in public—the bluff, genial,
but shy and vulnerable banker. “I should like it if the stuttering part were cut out
of my answer to that question,” Jack asked at one point. “I am not used to this
form of examination, Mr. Pecora, and I do not get my words quite straight
always.”55
Like Samuel Untermyer at the Pujo hearings, Ferdinand Pecora focused on the
House of Morgan’s standing as the banker’s bank. Jack saw nothing wrong with
Morgan partners sitting on the boards of Guaranty Trust and Bankers Trust. Nor
was he ashamed of the Morgan bank making loans to sixty officers and directors
of other banks, including Charles Mitchell of National City, Seward Prosser of
Bankers Trust, and William Potter of Guaranty Trust. Denying that this afforded
any special advantages, Jack said, “They are friends of ours, and we know that
they are good, sound, straight fellows.”56 Far from regretting the Morgan role as
the Wall Street clubhouse, Jack boasted that a private bank offered neutral
territory, where incorporated banks might “meet and discuss the general
problems without rivalry or competition.”57
Jack’s testimony exposed Depression America to a form of wholesale, private
banking that it had never known existed. When Pecora asked for the firm’s
partnership agreement, John Davis protested such public revelation. So in
executive session, Pecora unrolled the agreement: a magnificently hand-lettered
scroll that even some Morgan partners had never seen. It disclosed Jack’s
absolute powers to arbitrate disputes, allocate undivided profits, and even
dissolve the bank. Jack was proud of the bank’s secrecy. “Our relations with our
clients are much more confidential, in my opinion, than the relations with an
incorporated bank can be,” he said.58
In a culture that worshiped the hard sell, the reticent J. P. Morgan and
Company was a puzzling curiosity. As a private New York bank, it couldn’t
advertise, solicit deposits from the general public, or pay interest on deposits of
less than $7,500. Apparently, getting a Morgan account was like being accepted
at an exclusive country club. Even Senator Duncan U. Fletcher of Florida, the
Chairman of the Senate Banking and Currency Committee, was perplexed by
this:
Fletcher: But you are serving the public?
Morgan: Yes; but we are serving only our own clients who are our clients
by our own choice.
Fletcher: But you do not turn a man down, you do not select your clients;
you do not give them tickets and pass on them?
Morgan: Yes, we do.
Fletcher: You do?
Morgan: Yes, indeed; we do.
Fletcher: I suppose if I went there, even though I had never [seen] any
member of the firm, and had $100,000 I wanted to leave with the bank,
you would take it, wouldn’t you?
Morgan: No, we should not do it.
Fletcher: You would not?
Morgan: No.
Fletcher: I’m quite sure then you would not . . .
Morgan: Not unless you came in with some introduction, Senator.59
Then who banked at this place? Pecora outlined a list of companies that kept
million-dollar balances at Morgans—AT&T, Celanese, Du Pont, General
Electric, General Mills, Ingersoll-Rand, ITT, Johns-Man-ville, Kennecott
Copper, Montgomery Ward, New York Central, Northern Pacific, Standard
Brands, Standard Oil of New Jersey, Texas Gulf Sulphur, and U.S. Steel. Their
executives often chose J. P. Morgan for their personal bank accounts as well.
Pecora had charts showing that Morgan partners held 126 directorships in 89
corporations with $20 billion in assets. He later called this “incomparably the
greatest reach of power in private hands in our entire history.”60 He seemed
incredulous when Jack said partners went on boards only at the “earnest request”
of a company.
If Jack entered the hearings with serene confidence, he was soon engulfed in
an issue that would shadow him throughout the New Deal—income taxes.
Pecora revealed that Jack had paid no income tax for 1930, 1931, and 1932, and
all twenty Morgan partners paid nothing for 1931 and 1932. (Jack had paid taxes
in England for these years.) Pecora also showed that by making Parker Gilbert a
partner on January 2, 1931—instead of December 31, 1930, as would have been
customary—the firm claimed a $31-million capital loss for 1931. Bumbling and
flustered, Jack couldn’t recall the details of his tax picture; such vagueness was
plausible to his associates, suspicious to the public. Although Jack and most of
the partners hadn’t violated the law and had simply taken sizable write-offs from
stock losses, their failure to pay taxes was politically explosive in the
Depression. Tax shelters had not yet become a favorite American pastime, and
the government desperately needed money. The next day, headlines trumpeted
the Morgan partners’ “tax evasion.”
There were further embarrassing disclosures. Lamont’s son Tommy, now a
Morgan partner, had created a $114,000 capital loss by selling depressed shares
to his wife, then buying them back three months later—a practice known as a
wash sale. The young Lamont had to pay $3,949 in back taxes to remedy the
problem. It turned out that the Internal Revenue Service had been curiously lax
in examining Morgan tax returns; so sterling was the bank’s reputation—or so
feared was its power—that agents never closely inspected tax returns prepared
there. As Pecora later said: “The Bible tells us that a good name is rather to be
chosen than great riches. But it was vouchsafed to the members of J. P. Morgan
and Company to enjoy both.”61
As Jack’s testimony took on a carnival atmosphere, Kentucky senator Alben
W. Barkley told the doorkeeper to shut the rear door and asked photographers to
stop setting off the blinding flashbulbs. The cacophony from voices and chairs
scraping in the gallery sometimes drowned out Jack’s soft voice. The pugnacious
Carter Glass—who considered it a waste of time to interrogate upstanding
Morgan partners—experienced mounting indignation. A small man with a shock
of disheveled hair and a spare face, he thought the hearings a “Roman holiday”
that were distracting attention from his banking bill. He sniped at Pecora for his
treatment of the Morgan partners. “I do not intend to see any injustice done to
the House of Morgan,” he said, reddening with anger. “That is my attitude.”62
Fed up with the commotion over Jack’s appearance at the hearings, he blurted
out, “We are having a circus, and the only things lacking now are peanuts and
colored lemonade.”63
This gibe would change Jack Morgan’s life. Overnight it echoed in the mind
of Charles Leef, a Ringling Brothers press agent. The next morning, he brought
to Capitol Hill a thirty-two-year-old midget named Lya Graf. She wore a blue
satin dress and red straw hat. Only twenty-seven inches tall, she had a Kewpiedoll face with bright eyes and round cheeks. To enliven a delayed start to the
hearings, Ray Tucker, a Scripps-Howard newsman, went out into the corridor
and shepherded Leef and Lya into the Senate Caucus Room to meet the
celebrated banker. “Mr. Morgan, this is Miss Graf,” Tucker said. “She works for
the circus.” Graf blanched, but Jack stood and shook her hand with instinctive
ceremony. When he sat down, Leef, emboldened, plunked Graf on his lap, to the
horror of Morgan partners and lawyers. Jack apparently thought at first she was a
child.
“I have a grandson bigger than you,” Jack said in the sudden glow of dozens
of flashbulbs.
“But I’m older.”
“How old are you?”
“Thirty-two,” interjected Leef.
“I’m not,” Graf protested. “Only twenty.”
“Well, you certainly don’t look it,” Jack replied. “Where do you live?”
“In a tent, sir.”
“Lya,” said Leef, “take off your hat.”
“No, no,” she said.
“Don’t take it off,” Jack said. “It’s pretty.”64
The most powerful men on Wall Street—Tom Lamont, John Davis, Richard
Whitney—bitterly watched what they saw as a vulgar stunt, even a cruel attempt
to embarrass Jack. When the senators filed in, they were outraged by what had
happened and appealed to the press not to print the pictures, a request honored
only by the New York Times. The next day, pictures of Jack and Lya Graf
appeared on front pages across America. They would rank as some of the bestknown of all Depression photographs.
They are actually lovely shots, bright with whimsy, and they probably
accomplished more for Jack’s image than anything since the 1915 shooting.
Between the portly businessman and the ringleted midget on his knee, there was
an electric chemistry. While Graf steadied herself, Jack watched with fascinated
amusement; he was tender with the midget and resembled a proud grandfather.
For a generation of Americans, this would be their indelible image of Jack
Morgan. The pictures were widely credited with starting a new age in financial
public relations.
When his testimony was over, Jack dozed through the appearances of the
other Morgan partners. At one point, he awoke abruptly to ask what year it was.
In the sultry hearing room, a senator suggested they take off their coats. The oldfashioned Jack balked prudishly, then slipped off his light gray jacket, showing
his white suspenders. He laughed and joked with guards and asked one if he
needed his gun as protection against the senators. He showed reporters the
famous bloodstone Pierpont had worn. Yet he was not nearly as calm or relaxed
as he appeared. When a newsman told him he hadn’t seen such hoopla since the
Lindbergh kidnapping, Jack said privately that he “felt quite sick” at the
comment.65 His seeming aplomb contrasted with his deep mortification at being
held up to public scrutiny.
Jack could have used the episode with Lya Graf to capitalize on goodwill.
Instead, he was embittered by the hearings and sulked over the incident. His
New England pride wouldn’t let him admit what the photographs suggest—that
he had enjoyed the impromptu encounter. He didn’t want to be made human in
such a sordid way and said the incident had been “very unusual and somewhat
unpleasant.”66 With the press, he tried to react to the episode with faint sarcasm.
When asked why he hadn’t removed the woman from his lap, he replied, “Well,
you see, I didn’t know but what she might be a member of the Brain Trust or one
of the Cabinet.”67
Everyone noted the uncanny parallels between the Pujo and Pecora hearings.
Newspaper commentary favorably contrasted Jack’s cooperation with Pierpont’s
truculence and Will Rogers even forecast a brilliant career for Jack. In milder
moments, Jack conceded that Pecora hadn’t been as taxing as Untermyer. But he
was still unforgiving in his general appraisal. “Pecora has the manners of a
prosecuting attorney who is trying to convict a horse thief. Some of these
senators remind me of sex suppressed old maids who think everybody is trying
to seduce them.”68For someone as bashful as lack, a public grilling was a
gruesome affair. He declared, “To have stood before a crowd of people and
attempt by straight answers to crooked questions, to convince the world that one
is honest, is a form of insult that I do not think would be possible in any civilized
country.”69
Sometimes Jack could laugh about the experience. One day on the golf
fairway, he was lining up a shot when his caddy, Frank Colby, said he should
think of the ball as Pecora’s head. When Jack hit a splendid shot, they both
laughed appreciatively.70 But most of the time, Jack brooded about the hearings,
which ended up alienating him from the New Deal. Afterward, he got a visit
from William Jay Schieffelin, son-in-law of Dr. Markoe, who was trying to win
support for a scheme enabling poor people to buy life insurance from savings
banks. Jack not only refused to help, but made a revealing comment: “I only
wish I had the capacity you have, a capacity for indignation at outrages. I’ve
been so outraged that it leaves me cold when I hear of somebody else being
outraged.”71 This sense of his own victimization would close Jack’s mind toward
the Roosevelt programs. More and more, he would feel a revulsion from
America, a sense of being abandoned by his own country, and profound anger at
the tarnishing of his bank’s reputation.
The story of Lya Graf ends sadly. As sensitive as Jack, she was traumatized by
the endless jokes about the episode—so much so that in 1935 she decided to
return to her native Germany, even though she was half Jewish: her real name
was Lia Schwarz. Two years later, she was arrested by the Nazis as a “useless
person” and sent to Auschwitz, where she died in the gas chambers. All this was
learned only after the war when Nate Eagle, the Ringling Brothers manager who
cared for the midgets, traced her history. Jack Morgan never knew what became
of her, nor that her extreme distress over their brief encounter set in motion
events that led, ultimately, to her death.
Pecora adroitly exposed their subterfuges, the other partners fared no
better than Jack. When George Whitney read a statement favoring disclosure of
commissions in security offerings, Pecora sarcastically noted that the legislation
had just been passed. Returning in his questioning to 1929, Pecora lobbed
another grenade over to the Morgan side. That year, the bank had joined the
craze for creating new holding companies and had sponsored Alleghany
Corporation as a vehicle for the railroad and real estate interests of the Van
Sweringen brothers; United Corporation, an electric-utility holding company;
and Standard Brands, a merger of four food and consumer-products companies.
Instead of placing shares only with dealers, Morgans borrowed a British
precedent and placed shares with scores of friendly individuals. These shares
came from a block of stock the bank kept as its underwriting fee. On Wall Street
in the 1920s, it wasn’t uncommon to have company officers or well-heeled
individuals serve as underwriters. By allocating shares of the three holding
companies to rich investors, Morgans claimed, it had tried to strike a
compromise with its usual policy of not enticing individuals into risky stock
transactions. As George Whitney said, they chose only those customers whom
they knew were “competent financially and mentally to undertake the risks,
whatever the risk may be.”72
Such self-serving descriptions didn’t capture the reality of 1929. In the
souped-up bull market, shares offered to Morgan intimates before the public
issue were already selling on a when-issued basis at a steep premium. (Whenissued sales occur before a public offering and anticipate the price that will
prevail when trading begins.) Between the Morgan price for lucky friends and
this provisional market price lay a wide gap, an instant windfall. For instance,
the bank was giving Alleghany shares to friends at $20 apiece; these could soon
be cashed in for $35; United shares at $75 would soon go for $99; and Standard
Brands shares bought at $32 could be redeemed just sixty days later at $41. In
the soaring 1929 market, there was no great risk in carrying these shares before
public issue, and the potential rewards were colossal. The shares seemed almost
to be outright gifts—the sort of royal bequest only the House of Morgan could
bestow. In Alleghany stock alone, the bank had over $8 million in profits to
distribute. The setup was dubbed the gravy train.
The revelation of the House of Morgan’s so-called preferred list of friends
confirmed Main Street’s cynicism of Wall Street as a place of easy riches and
loose morals. For Morgan critics, this was at last the smoking gun, the tangible
proof of corruption. The stunning list of recipients encompassed the American
business and political elite. It started at the very top. After leaving the White
House, Calvin Coolidge had been advised on finances by Morgan partner Tom
AS
Cochran and received three thousand shares of Standard Brands; somewhat
ashamed at this revelation, he told friends that it saddened him to appear on the
preferred list while they were on the welfare list.73 Other Republican
beneficiaries included Charles O. Hilles, chairman of the Republican National
Committee, and Charles Francis Adams, Hoover’s secretary of the navy and the
father-in-law of Jack’s younger son, Harry.
Hedging its bets, Morgans also cultivated Democrats. This side of the ledger
was even more embarrassing to its recipients, among them William G. McAdoo,
the former Treasury secretary, a mentor of Russell Leffingwell. What made
McAdoo’s plight especially mortifying was that as a senator, he now sat on the
Pecora committee. Also on the list was John J. Raskob, chairman of the
Democratic National Committee. The list reached straight into the New Deal
itself. When he was president of American Car and Foundry Company in 1929,
William H. Woodin, now FDR’s Treasury secretary, had taken up Morgans on an
offer.
Beyond politics, the preferred list exposed an astonishing range of Morgan
corporate contacts. There were business chieftains—Owen Young of General
Electric, Myron Taylor of U.S. Steel, Walter Teagle of Standard Oil of New
Jersey, Walter Gifford of AT&T, and Sosthenes Behn of ITT; financiers—Albert
Wiggin of Chase, George F. Baker of First National, Richard Whitney of the
New York Stock Exchange, and Bernard Baruch; a war hero—General John
Pershing; a national hero—Charles Lindbergh; distinguished lawyers—John W.
Davis and Albert G. Milbank; and distinguished families—Guggenheims,
Drexels, Biddies, and Berwinds.
The House of Morgan was shaken by the disclosures and the imputation of
dishonesty. When hiring partners, both Pierpont and Jack had always made the
same statement; they would say, “I want my business done up there”—holding
their hands in the air—“and not down here”—pointing to the ground.74 Jack
would tell people that at the first sign of unethical conduct, they should come
straight to him. Now the bank had to face charges that it had unscrupulously
curried favor with a broad spectrum of business and political leaders. How to
defend the indefensible?
The task fell to George Whitney, whose Brahmin good looks and lacquered
black hair made him the prototypically handsome Morgan partner of his
generation. He had enjoyed Alleghany bounty himself, netting $229,000 on the
sale of eight thousand shares. A tough, unyielding witness, Whitney stuck to the
line that the bank was shielding small investors from risk. “They took a risk of
profit,” Whitney said of the preferred customers; “they took a risk of loss.”
Pecora later rejoined: “Many there were who would gladly have helped them
share that appalling peril!”75 At moments, even the self-assured Whitney seemed
confused, stammering at one point, “I don’t know, Senator Couzens. It is hard to
say why we did things. It is even harder to say why we didn’t.”76
Even as Morgan partners denied that shares were distributed to influence
people, Pecora released subpoenaed bank records that confirmed a less than
angelic intent. In 1929, Morgan partner William Ewing had written to William
Woodin coyly acknowledging the bonanza being offered:
I believe that the stock is selling in the market around $35 to $37 a share, which
means very little, except that people wish to speculate. We are reserving for you
1,000 shares at $20 a share, if you would like to have it. There are no strings tied
to this stock, and you can sell it whenever you wish. . . . We just want you to
know that we were thinking of you in this connection and thought you might like
to have a little of the stock at the same price we are paying for it.77
Other documents suggested that the operation was conducted secretly. Partner
Arthur Anderson told lawyer Albert Milbank, “It probably is unnecessary for me
to add that I hope you will not make any mention of this operation.”78 Some
correspondence resorted to sly hints. Golfing in Palm Beach, John J. Raskob, a
former Du Pont treasurer and General Motors director, thanked George Whitney
for his shares with the sincere hope that “the future holds opportunities for me to
reciprocate.”79
Lamont was indignant at charges of influence peddling. Yet his own files
contain a February 1929 memo that may be the most damaging of all. In a
postscript written to Arthur Anderson, it shows how the distributed shares were
discussed internally: “It occurred to me this morning to make inquiry from you
whether in our distribution of Alleghany common we had allotted anything to
Frederick Strauss. He was so exceedingly helpful and at considerable sacrifice to
himself in going over to Washington to testify in the matter of the stock issues,
that I am not at all sure that we ought not to try to do something for him even at
a date as late as this.”80 Clearly, the preferred list had less to do with protecting
small investors than with rewarding important friends.
The preferred list came at a particularly inopportune time both for the
Roosevelt administration and the Morgan bank. High finance was on trial, and
congressional hoppers bulged with securities-reform bills. The cabinet spent an
hour deciding whether Woodin should remain in his post as Treasury secretary.
Vice-President John Nance Garner favored his resignation to establish that the
administration was free of Morgan influence, but Roosevelt feared abandoning a
friend under fire. “The President took the position that many of us did things
prior to 1929 that we wouldn’t think of doing now; that our code of ethics had
radically changed,” Interior Secretary Harold Ickes wrote in his diary.81 Woodin
remained in the cabinet until November 1933, when, gravely ill, he was replaced
by Morgenthau. The cabinet was also disturbed by the appearance of Norman
Davis, its roving ambassador, on the preferred list. Some feared that if the
Roosevelt administration moved closer to the League of Nations or the British
government, the public would impute the action to Morgan influence over Davis.
Despite this, Davis represented Washington at several high-level European
conferences in the 1930s.
The public reacted to the preferred list scandal with extreme disillusionment:
the brightest angel on Wall Street had fallen. The bank had avoided the flagrant
abuses of other banks—even Pecora called Morgans a “conservative” firm—but
the preferred list cast it in the mud with other banks. A stunned Walter Lippmann
told Morgan friends that no group of men should have such private power
without public accountability. It was a bitter pill for Lippmann, who had often
dined at Lamont’s table. His biographer, Ronald Steel, suggests that he and other
journalists were lulled to sleep by Lamont, whose “charm and familiarity with
the trade enabled him to persuade many journalists to look upon the activities of
the Morgan firm no more critically than he did himself.”82
Lippmann wasn’t the only shocked journalist. As if some mighty public trust
had been betrayed, the New York Times wrote an elegiac editorial: “Here was a
firm of bankers, perhaps the most famous and powerful in the whole world,
which was certainly under no necessity of practicing the small arts of petty
traders. Yet it failed under a test of its pride and prestige. . . . They have given
their warmest friends cause for feeling that somehow the whole community,
along with numbers of men whom all had delighted to honor, has been involved
in a sort of public misfortune.”83
Reading this, Lamont became distraught. Of the Morgan partners, he had the
most personal need for admiration. He wrote his friend Adolph Ochs, publisher
of the Times, trying to extenuate the scandal. He said Morgans hadn’t expected
people on the list to serve in public office again. He cited the risks of owning
common stock and made it sound as if the list were made up only of family and
friends. The explanations sounded strained: “We naturally turned in part to
individuals who had ample means and who understand the nature of common
stock—men who are prepared to take a chance with their money.”84 All his arts
couldn’t hide what had become a certifiable scandal, setting the stage for the bill
that would dismember the House of Morgan.
Glass-Steagall Act was sponsored by a Virginia senator who felt more
warmly toward 23 Wall than any of his Senate Banking Committee colleagues.
Small and peppery, Carter Glass was a former Lynchburg newspaper editor with
little formal education. As a congressman, he had helped to write the Federal
Reserve Act and had espoused strong banker control. As Wilson’s Treasury
secretary, he had been Russell Leffingwell’s boss. In early 1933, he was a mass
of contradictions. After supporting Roosevelt’s election, he quickly emerged as
an articulate critic of FDR. He rebuffed the president’s offer to become Treasury
secretary and attacked New Deal activism from a Jeffersonian standpoint; he was
the sole Democratic senator to oppose the gold devaluation. Glass sponsored his
famous bill with no personal animus toward Wall Street. In fact, he and
Leffingwell often exchanged nostalgic, syrupy notes about their years in the
Treasury Department. Although Leffingwell described their friendship as one of
his most cherished, he was frustrated in his efforts to capitalize on it that spring:
when subcommittee members working on the bank-reform bill swore not to talk
to outsiders about it, Glass had to abide by the decision.
Glass-Steagall evolved in a way that owed much to fate. Huey Long and other
congressional populists wanted federal deposit insurance in the bill, as well as
restrictions on interstate branching. Both features were anathema to Roosevelt,
who favored a national banking system that would put small-town Republican
bankers out of business, not prop them up. Like Hoover, he feared that deposit
insurance would pull strong banks down with the weak and thought it “puts a
premium on sloppy banking and penalizes good banking.”85
Roosevelt kept the press guessing whether he would support Glass-Steagall.
The Pecora hearings certainly contributed to public support of the bill. But what
sealed its fate was the flood of mail to Congress favoring deposit insurance. The
inclusion of deposit insurance was also important because nobody wanted to
insure the securities affiliates of banks; if they had federal insurance, they would
be obliged to stick to conservative loan-and-deposit banking. Finally, the bill set
ceilings on savings interest rates. The Glass-Steagall Act was signed on June 16,
1933, by a president who didn’t even think the public was particularly eager for
banking reform. From now on, banks would either take deposits and make loans
or merchandise securities—but not both.
A surprise last-minute insertion in the bill was a provision endorsed by Chase
president Winthrop Aldrich that forced private banks to choose between deposit
and securities businesses. This was the coup de grâce for the House of Morgan.
Later Carter Glass told Leffingwell that Aldrich drafted this provision and that
Roosevelt foisted it on him. Pecora’s disclosure about the Morgan partners’
avoidance of income taxes made it impossible to delete this provision, so strong
THE
was public wrath.86 Adding to the pressure was Chase’s decision to disband its
securities affiliate, whose refugees joined with renegades from the First National
Bank of Boston to form First Boston, the first modern American investment
bank.
The Glass-Steagall Act took dead aim at the House of Morgan. After all, it
was the bank that had most spectacularly fused the two forms of banking. It had,
ironically, proved that the two types of services could be successfully combined;
Kuhn, Loeb and Lehman Brothers did less deposit business, while National City
and Chase had scandal-ridden securities affiliates. The House of Morgan was the
active double threat, with its million-dollar corporate balances and blue-ribbon
underwriting business.
What was the theory behind the Glass-Steagall Act? Foremost, it was meant to
restore a certain sobriety to American finance. In the 1920s, the banker had gone
from a person of sober rectitude to a huckster who encouraged people to gamble
on risky stocks and bonds. As Pecora noted, small investors identified
commercial banks with security, so that National City stock salesmen “came to
them clothed with all the authority and prestige of the magic name ’National
City.’ ”87 It was also argued that the union of deposit and securities banking
created potential conflicts of interest. Banks could take bad loans, repackage
them as bonds, and fob them off on investors, as National City had done with
Latin American loans. They could even lend investors the money to buy the
bonds. A final problem with the banks’ brokerage affiliates was that they forced
the Federal Reserve System to stand behind both depositors and speculators. If a
securities affiliate failed, the Fed might need to rescue it to protect the parent
bank. In other words, the government might have to protect speculators to save
depositors.
Ultimately, Glass-Steagall was as much an attempt to punish the banking
industry as it was a measure to reform it. It was Main Street striking back at Wall
Street, rounding out the 1929 disaster. The bill also had supporters among small
investment banks eager to exclude large commercial banks from their domain.
Many economic historians have pointed out the tenuous links between the crash
and the subsequent bank failures. Bank failures were concentrated among
thousands of country banks across America, while big Wall Street banks with
securities affiliates withstood the Depression relatively well. Yet Glass-Steagall
and other New Deal reform acts were directed at Wall Street and insulated little
crossroads banks from big-city competition. This made political, but not
economic, sense. The speculative fever of the 1920s had infected all securities
houses, whether or not they were subsidiaries of deposit banks. The Jazz Age on
Wall Street might have been no less effervescent if a Glass-Steagall arrangement
had already been in place.
The House of Morgan had trenchant arguments to make against the bill, but
nobody listened. After the Pecora hearings, even well-reasoned arguments by the
financial elite resembled self-serving blather. Lamont pointed out that the
flagrant scandals of the 1920s had involved retail-investment affiliates. Why,
then, couldn’t wholesale banks, such as J. P. Morgan, distribute securities not to
individuals but to dealers and large institutions? The Morgan partners also
argued that disclosure requirements in the new Securities Act of 1933 would
force banks to identify any loans outstanding to countries or companies whose
bonds they issued—safeguards for bond investors lacking in the 1920s.
Lamont contended that size wasn’t to blame for America’s fragile banking
system so much as fragmentation. The country had over twenty thousand
banking institutions, resulting in a financial history peculiarly checkered with
panics, failures, and runs. England, France, and Canada, by contrast, had a small
number of large national banks, and these had passed through the Depression in
far better shape. Then why not bigger, better-capitalized banks? To free banks
from reliance on a single industry—whether Texas oil or Kansas farming—
Lamont favored interstate banking. Russell Leffingwell contended as well that
removing big commercial banks from underwriting work would produce capitalshort investment banks—a prophecy not fully appreciated until decades later.
In 1933, however, such a perspective was bootless. The public wanted to see
the giants slain and didn’t care about the dusty little banks that had faltered from
bad luck or mismanagement. America’s atomized banking system might have
contributed to its stormy financial history, but the political response was always
to segment it further. With the Glass-Steagall Act, America experienced the
catharsis awaited since Black Thursday. As Leffingwell said, “There is so much
hunger and distress that it is only too natural for the people to blame the bankers
and to visit their wrath on the greatest name in American banking.”88 All the
while, Morgan partners felt that they suffered for sins committed by others.
George Whitney later remarked that “we never retailed while I was in our office,
but that’s where the trouble started, and the New Deal was smart enough to
realize that if they could cut the security business up in pieces, they would take
this power away and they did.”89
CHAPTER NINETEEN
CRACK-UP
AFTER passage of the Glass-Steagall Act, there was a grace period, during
which the House of Morgan had to choose between deposit and investment
banking. The partners still hoped the measure would be repealed. But after its
unrivaled political influence in the 1920s, the bank seemed paralyzed, unable to
exercise influence. As Arthur Schlesinger, Jr., has noted, no group lost more in
public esteem, or more keenly lamented its exclusion from Washington, than the
bankers. They became a caste of untouchables right at the start of the New Deal.
For the House of Morgan, there were moments when the rout by enemy troops
seemed terrifyingly complete. Its old foes were entrenched in Washington. For
the new securities-disclosure law, the White House had asked Samuel
Untermyer, of Pujo fame, to prepare a draft. Untermyer lost standing with
Roosevelt, however, when he bragged too much about his supposed intimacy
with the president.
The intellectual mentor of much legislation was that scourge of the New
Haven Railroad, Louis Brandeis, now a Supreme Court justice. In May 1933, the
precepts he had expounded to Lamont at the University Club twenty years before
became law in the Securities Act. This truth-in-securities law required the
registration of new securities and full disclosure of information about companies
and underwriters. Caveat vendor replaced caveat emptor as the regulatory
philosophy. When FDR spoke in favor of the bill, he alluded to Brandeis’s book
about the New Haven railroad, Other People’s Money; the law, said Roosevelt,
would embody “the ancient truth that those who manage banks, corporations,
and other agencies handling or using other people’s money are trustees acting for
others.”1
For the House of Morgan, Louis Brandeis was more than just a critic; he was
an adversary of almost mythical proportions. In early 1934, Leffingwell told
Lamont he should read a new edition of Other People’s Money and blamed
Brandeis for the Glass-Steagall provision pertaining to private banks: “I have
little doubt that he inspired it, or even drafted it. The Jews do not forget. They
are relentless. . . . The reason why I make so much of this is that I think you
underestimate the forces we are antagonizing. . . . I believe that we are
confronted with the profound politico-economic philosophy, matured in the
wood for twenty years, of the finest brain and the most powerful personality in
the Democratic party, who happens to be a Justice of the Supreme Court.”2
Despite the separation of powers, Brandeis advised Roosevelt through an
emissary—his daughter, Elizabeth Raushenbush. Roosevelt referred to Brandeis
by the code name Isaiah.
In 1934, the House of Morgan joined with New York Stock Exchange
president Richard Whitney in a zealous lobbying effort to defeat the Securities
Exchange Act. Operating from a Georgetown townhouse nicknamed the Wall
Street Embassy, they warned that federal regulation would convert the Street into
“a deserted village.”3 It was a campaign of such harrowing intensity that despite
the anti-Wall Street mood, the bill’s authors were surprised by their victory. One
of them, Thomas G. Corcoran, exulted, “Rayburn and I stood alone against all
the batteries of lawyers sent by Morgan’s and the Stock Exchange—and we won
out!”4 Another Morgan hobgoblin, Joseph Kennedy, snubbed by Jack before the
crash, became the Securities and Exchange Commission’s first chairman.
Ferdinand Pecora, who worked on the bill, was named a commissioner. The
money changers had indeed been chased from the Temple, by the Irish, the
Italians, and the Jews—the groups excluded from Wasp Wall Street in the 1920s.
The Morgan partners resorted to hyperbolic criticism when they should have
been conciliatory. Jack Morgan inveighed against “absurd” federal deposit
insurance and warned of dying capital markets if securities laws were enacted.
Faced with the decline of the bank’s power, he emitted an air of subdued defeat.
He complained to friends that he was a punching bag for every political
propagandist. Like other partners, he felt muzzled in contesting the New Deal—
perhaps the reason why he didn’t join his friend and lawyer John Davis in
forming the anti-New Deal Liberty League in 1934. “If anybody lifts his voice in
protest . . . he is at once held up to public scorn as a totally selfish, grasping
individual, wholly unresponsive to the new thought,”5 he declared. He was an
easy butt for critics. He often antagonized reporters by curtly refusing
interviews: “I do not think my opinion is worth a damn.” Other times, he would
talk and denounce progressive income taxes or take other inflammatory stands.
Either way, his popularity declined.
Teddy Roosevelt had been Pierpont’s tormenter, and now another Roosevelt
served the same role for Jack. At moments, the Roosevelt family seemed one big
throng of Morgan-hating harpies. When somebody mentioned TR, Jack
spluttered: “God damn all Roosevelts!”6 He was fond of quoting Richard
Hooker, the English Renaissance divine, that to live by one man’s will was every
man’s misery. For Jack, that man was FDR, whom he saw as a frightening leftwing charlatan out to destroy his own class. In 1934, he said, “I am gradually
coming to the opinion, which I did not have at first, that the United States will
probably outlive even the attacks upon it by Franklin Roosevelt and I am
particularly satisfied to see the rising tide of opposition to his fierce methods and
his wholesale slaughter of reputations.”7 The Roosevelt hatred became
obsessive. When Jack developed a heart condition, his grandchildren were
instructed not to mention the president’s name in his presence. Other accounts
tell of retainers snipping Roosevelt photos from Jack’s morning paper, in
deference to the master’s high blood pressure.
Rather than bending with the time, Jack’s conservatism grew crustily
defensive. The old swipes at Congress lapsed into ugly diatribes against
democracy and universal suffrage. Congressmen were “wild men” who
controlled his destiny, while the intelligent, propertied class were subjected to
the whims of a fickle, emotional majority. He regarded the New Deal less as a
set of economic reforms than as a direct, malicious assault on the social order,
aimed at the “extinction of all wealth and earning power.”8 Notwithstanding a
25-percent jobless rate, he wanted balanced budgets and low taxes. “The more I
see of the New Deal,” he said, “the more I realize that there is nothing new about
it except its name.”9
As chief bank lobbyist, Lamont wasn’t reflexively antagonistic to the New
Deal and applauded measures to combat deflation, such as open-market
operations (the purchase and sale of government securities) by the Fed. At
moments in the 1930s, Morgans supported easy-money policies while hidebound
Wall Street fretted about inflation. But even Lamont never presented a reform
program that would steal the bank critics’ thunder; Wall Street let its enemies
write the new laws.
As was his wont, Lamont used different voices as he spoke to different people.
At a private dinner in 1934, he told relief administrator Harry Hopkins, “Well, if
the country was willing to spend thirty billion dollars in a year’s time to try to
lick the Germans, I don’t see why people should complain about its spending
five or six billion dollars to keep people from starving.”10 Here he sounded like a
free-spending liberal. Yet in chatting with Chancellor of the Exchequer Neville
Chamberlain that year, he praised Britain for overcoming the Depression through
sound, old-fashioned policies, not deficit spending. He joked, “I suppose I
mustn’t hold you personally responsible for having sent Keynes over and to have
made our President spend another Vi billion dollars in public works.”11
The best weapon the Morgan bank had for changing New Deal policy was
Russell Leffingwell. With his pure white hair and Pinocchio nose, he looked like
a sage or an elder statesman. He was an omnivorous reader, a man of wide vision
who could offer cogent opinions on any subject. Leffingwell had the most
balanced view of the New Deal and often told friends Roosevelt had saved
America from revolution in 1933. He wasn’t afraid to scandalize Wall Street by
consorting with the president. Sometimes he used his friend Morris Ernst, a
liberal lawyer, as an intermediary to the White House, so that Walter Winchell
and other columnists wouldn’t get wind of his influence. Yet even Leffingwell
couldn’t make the intellectual adjustment required by the economic emergency.
When Roosevelt brought him to the White House in October 1934 to discuss a
new public works program, Leffingwell rejected the plan with ritual assertions
that it would cause inflation and crowd out private capital from financial
markets. Yet deflation was the major problem, and far from being overcrowded,
capital markets were empty. Leffingwell was a nineteenth-century liberal and
found it hard to approve of many forms of government intervention in the
economy.
In many ways, the House of Morgan was a muscle-bound giant, afraid its
lobbying efforts would be twisted by opponents into proof of insidious power.
By late 1933, the airwaves were filled with demagogic voices that ascribed the
Depression to Wall Street-inspired monetary policy. Father Charles E. Coughlin,
the radio priest, stoked the old prairie fires once lighted by William Jennings
Bryan. From his Shrine of the Little Flower near Detroit, he incited his
nationwide audience with tales of a bank that had enslaved America to the gold
standard, had long colluded with the British crown, and had forced debt and
deflation on farmers. That the same bank had hailed Britain and America’s
departure from gold mattered not a whit. In a November 1933 broadcast entitled
“Thus Goeth the Battle!” Coughlin dredged up old myths about the House of
Morgan: “Who in God’s name ever accused the Morgans of having patriotism to
this country? Who doesn’t know that they have been playing the British game
for years; that they pay taxes to England and none to America?”
He then evoked a football team of politicians—Morgan stooges all—who had
pushed America into the Depression:
And on the sidelines there sits J. Pierpont Morgan—the Knute Rockne of the
grand old guard—the scout in the pay of England, the master mind of taxdodging, the strategist of the financial huddle. . .
There are two powerful generations of Morgans—the elder who sold
guns to the Civil War soldiers—guns that couldn’t shoot—and the younger
who arranged money for more guns that shot to no avail in the last war. . . .
Now where do you stand? Choose between Roosevelt and Morgans!
Choose between these anointed racketeers of Wall Street . . . and the “new
deal”!12
Father Coughlin would ask his listeners to mail in dollar bills. It later was
revealed that he used some of the money to speculate in silver futures through a
personal account at Paine Webber.
In these scurrilous attacks by Coughlin, the Hearst press, and other isolationist
organs, a powerful theme emerged—that World War I and the Depression had
been instigated by the same Wall Street bankers. The argument was that the
bankers drew America into the war to safeguard their Allied loans and that the
debts and reparations produced by the war led to the Depression, ergo, Morgans
and other international bankers were to blame for American participation in the
war and for the Depression. For Anglophobic populists, this was a convenient
equation. They could exploit discontent with Wall Street to argue against closer
ties with Britain, and they could tap isolationist sentiment to press for tougher
bank controls. The House of Morgan was the natural target for this attack.
was as perplexed and annoyed with the Wall Street bankers as
they were with him. He saw himself as saving the patient with radical surgery,
not killing him. His talent for experimentation, for latching onto new ideas, was
profoundly disturbing to bankers who had lived by sacred, immutable laws. To
try to patch up relations, FDR invited Morgan loyalist George Harrison, Ben
Strong’s successor at the New York Fed, for a weekend cruise aboard his yacht,
the Sequoia. Commenting on the bankers’ mistrust, Roosevelt said ruefully,
“They oppose everything I do, even though it is with the intention of helping
them.”13
Eager to mediate, Harrison arranged for FDR to address a meeting of the
American Bankers Association in Washington. Lamont and Parker Gilbert
attended, the first time Morgan partners ever graced an ABA meeting. The effort
at mediation only worsened matters. Jackson Reynolds of the First National
Bank of New York delivered a keynote speech lauding FDR. But when it was
discovered that Roosevelt himself had vetted the speech, the bankers felt
cheated, and the New Deal-bankers truce was ended. Both sides retreated into a
bitter standoff.
Perhaps the most sophisticated foray against the House of Morgan came from
those who sought changes in the Federal Reserve System. A little-noticed
ROOSEVELT
provision of the Glass-Steagall Act forbade the New York Fed to conduct
negotiations with foreign banks. This was Washington’s response to the
elaborate connivance between Ben Strong and Monty Norman—a relationship
so important for the House of Morgan. The seemingly innocuous measure was
one of Washington’s canniest moves against the bank.
Then in 1934, a young Utah banker, Marriner Stoddard Eccles, advised the
Roosevelt administration on revisions to the Federal Reserve Act. Eccles wanted
to emasculate the New York Fed and shift power to the Federal Reserve Board in
Washington so as to purge the influence of Wall Street bankers from the system.
Leffingwell was especially incensed at this move because he blamed the 1929
crash on the Washington board’s interference with the New York Fed, which had
wanted to raise interest rates and arrest speculation. George Harrison tried to
marshal enough conservative senators to defeat the Banking Act of 1935, but his
efforts were in vain. Under the Eccles legislation, the district banks lost much of
their autonomy; power was now lodged in the seven-member Washington board.
In two symbolic steps underscoring the Fed’s new independence, the Treasury
secretary was removed from the board, and the Fed, which had operated from
Treasury premises, got its own building.
Later Eccles tried to put Parker Gilbert on the reorganized Fed board, but
Morgan partners dismissed the move as a sop, knowing that the Fed now
responded to new political masters. In many ways, the Eccles reforms belatedly
accomplished the aims of the Fed’s progressive supporters, who had wanted an
American central bank to curb Wall Street power. The 1920s Republican
abdication of an international role had permitted Ben Strong and the House of
Morgan to subvert that intention. Now, over twenty years later, the ghost of the
Money Trust was finally exorcised.
Wall Street banks, none agonized more than the House of Morgan
over whether to choose deposit or investment banking. It postponed a final
decision until the summer of 1935. By that point, it had been legally barred from
securities work for a year. Disturbed by the paucity of industrial issues on Wall
Street, Carter Glass inserted an amendment into the proposed Banking Act of
1935 that restored limited securities powers to deposit banks. The partners rested
their final hopes on this peg.
George Whitney, as head of corporate underwriting, was under mounting
pressure to inform Morgan clients of the bank’s decision. With interest rates
down, many companies wanted to refund maturing bonds at lower rates. They
kept asking Whitney what to do. In late July, Charles Mitchell, former chairman
AMONG
of the National City Bank and now a partner in Blyth and Company, found
Whitney still hoping for a last-minute reversal of Glass-Steagall. “I think they
are waiting . . . to see if the underwriting amendment in the banking bill will
pass,” Mitchell told a partner, “and regarding this they are more optimistic than
they have been.”14 In late August, the banking amendment reached a HouseSenate conference committee. But President Roosevelt—bringing down his fist
in one last blow to the House of Morgan—interceded to kill the amendment. He
refused to consider any modification of Glass-Steagall.
As if too depressed to face the truth, Jack had kept assuring Teddy Grenfell
that the amendment would pass. Yet mysterious doings in the art market of early
1935 betrayed his underlying pessimism. Citing inheritance taxes and a desire to
put his estate in order, Jack sold six magnificent paintings for $1.5 million. To
Fritz Thyssen, the German steel magnate, went Domenico Ghirlandajo’s portrait
of Giovanna Tor-nabuoni while the Metropolitan Museum got a Fra Filippo
Lippi triptych and Rubens’s Anne of Austria. Through Christie’s in London,
Jack auctioned seven cases of coveted miniatures amassed over thirty years. In
oppressive July heat, with a nurse in attendance in case anyone fainted,
Christie’s sold a portrait by Hans Holbein the Younger, a gold pendant with
Queen Elizabeth’s profile, and other rarities. Only astute press commentators
connected this sudden need for cash with a pending decision about the House of
Morgan. As he had demonstrated after his father’s death, Jack was ready to pare
his art collection ruthlessly if he needed to conserve the bank’s capital.
Before J. P. Morgan and Company made its decision, a new arrangement was
devised with Morgan Grenfell in June 1934 to comply with Glass-Steagall. The
British house became a limited company in which the New York firm held a onethird stake. This was designed to buffer the new commercial bank, J. P. Morgan
and Company, from British securities work, a structure preferred by the Bank of
England as well. New York would now be a passive investor. “It was definitely a
hands-off situation,” noted Tim Collins, a later Morgan Grenfell chairman.15
There remained a close, familial feeling between 23 Wall and 23 Great
Winchester, and the London Times called it only a “slight technical alteration.”16
Yet for a firm that had always been subordinate to New York, the change
represented a new level of British autonomy. It also occurred at a time when the
City could no longer float huge foreign loans, as it had before the war, except for
the British Empire. Morgan Grenfell and London’s other merchant banks
concentrated instead upon securities and merger work for domestic companies.
In August 1935, Tom Lamont gathered the J. P. Morgan chieftains at his island
farm off the Maine coast. The group included Morgan partners Leffingwell,
Whitney, S. Parker Gilbert, and Harold Stanley, and Lansing Reed of Davis,
Polk, and Wardwell. At this secret meeting, the House of Morgan decided
irrevocably to remain a deposit bank and spin off an investment bank called
Morgan Stanley. No minutes survive from this summit, thus leaving unanswered
several essential questions. Why did Morgans—nonpareil of underwriters—opt
for “commercial” rather than “investment” banking? Why the preference for
deposits and loans rather than securities and brokering? Why an action that, in
retrospect, seems a failure of vision?
Fifty years later, the choice seems strange. Between 1919 and the Pecora
hearings, Morgans had sponsored $6 billion in securities for blue-chip
companies and foreign governments. The Morgan cachet on bond issues brought
in collateral banking business, such as the payment of dividends on bonds. As
Russell Leffingwell had told Lamont, “I believe further that our securities
business is a necessary feeder to our banking business, and that without it the
banking business would in time dry up.”17 Except for Brown Brothers Harriman,
most distinguished partnerships—Kuhn, Loeb; Goldman, Sachs; and Lehman
Brothers—opted for “investment banking” (a misnomer for the securities
business the term denotes). The world of commercial banking—with its letters of
credit, loans, foreign exchange, and stock-transfer work—seemed prosaic for a
bank of such rarefied tastes and as active in secret diplomacy as J. P. Morgan and
Company.
The choice was heavily influenced by the moribund state of the securities
markets. Securities underwriting had become the firm’s least profitable activity,
and new securities laws strapped underwriters with large potential liabilities.
Stung by the preferred-list scandal, perhaps Jack Morgan favored commercial
banking as more stable and consistently profitable than investment banking. In
urging repeal of Glass-Steagall, Leffingwell wrote a letter to Roosevelt that
shows the way in which securities work was regarded during the Depression:
The business of underwriting capital issues is and should be a byproduct
business. It is occasional and sporadic. Nobody can afford to be in the business
unless he has a good bread and butter business to live on. A house exclusively in
the underwriting business is under too much pressure to pay overhead and living
expenses to pick and choose the issues it will underwrite.
One reason why our record is so good . . . may be . . . that we have no
salesmen, very little overhead attributable to the underwriting business and
that we have a good bread and butter banking business. So we could and
did say no to half of Europe and of South America.18
This approach of keeping overhead low, not having salesmen, and selecting
only prime clients would shape Morgan Stanley’s philosophy for the next fortyfive years.
The human factor was undoubtedly also significant in choosing commercial
banking. In 1935, about 20 percent of American workers were unemployed. It
would have been hard to renounce the labor-intensive activities on the
commercial-banking side. To have entered investment banking would have
meant wholesale firings—an egregious betrayal for a paternalistic firm. Says an
official Morgan history: “At the time of that decision the partnership, J.P.
Morgan &. Co., had a staff of about 425 people. If the firm had chosen to remain
solely in the securities business, a large part of this staff probably would have
become surplus. . . . Approximately 400 people were busy in commercial
banking and other activities and remained with the firm; about twenty left to
form Morgan Stanley & Co.”19
There were also less benign motives. Morgan partners wanted to retain the
option of someday recreating the House of Morgan without losing its clients. In
late 1934, Lamont wrote to his partner Charles Steele: “We all feel, I think, that
ways and means will be found to get us back into the securities business, either
through the amendment of the existing laws or through some separate corporate
plan or otherwise. We are considering all these matters now, but have by no
means accepted the idea that . . . we are to be eliminated from the security
business”20 (italics added). The reference to a separate corporate plan hints at
Morgan Stanley’s genesis. Lamont, it seems, believed they could stay in
securities without changes in Glass-Steagall, suggesting he had a trick or two up
his sleeve.
Both at 23 Wall and elsewhere, Morgan Stanley was regarded as a branch of
the main trunk, a successor firm. As a cable to Morgan Grenfell explained, “The
fact it is a segregation is apparently well understood. At the same time, everyone
looks to the new company to carry on the traditions of the firm.”21 The House of
Morgan probably wanted to create a firm that later, under a friendly Republican
administration, could be cleanly folded back into J. P. Morgan and Company.
Lamont may have recalled the birth of Bankers Trust as a “captive” bank, one
that would politely return customers referred to them for trust business. If
Morgans had chosen investment banking and released 90 percent of its staff, it
would have been impossible to rebuild the House of Morgan if Glass-Steagall
were rescinded.
At four o’clock on the afternoon of September 5, 1935, the eve of Jack
Morgan’s sixty-eighth birthday, the House of Morgan was officially divided.
Lamont, Whitney, and Stanley stood before the fireplace at the end of the long
narrow partners’ room, below the oil portrait of Pierpont. They announced to two
dozen newsmen that several people from the Morgan Bond Department would
leave to form Morgan Stanley. The new firm would have three J. P. Morgan
partners—Harold Stanley, who had joined the firm in late 1927, after Dwight
Morrow was appointed ambassador to Mexico; Jack’s younger son, Harry; and
William Ewing—and two Drexel partners, Perry Hall and Edward H. York.
Lamont said the new firm would conduct a securities business “of the character
formerly handled by our firm.”22
Jack and Harry Morgan were absent from the conference, refusing to forgo the
pleasures of grouse shooting, even on this historic occasion. It was a mournful
moment. One reporter, noting the solemn faces, observed, “The segregation of
the old firm was taken as seriously as a separation of any private family.”23 Yet
however lugubrious for Morgans, the new Morgan Stanley was cheered as a sign
of returning prosperity, a tonic to Wall Street’s mood.
Morgan Stanley looked less a distant cousin than a richly endowed stepson of
J. P. Morgan and Company, which financed it almost fully. Morgan Stanley
officers owned virtually all the $500,000 of common stock, and they retained
voting control. But the real start-up capital was $7 million in nonvoting preferred
stock, $6.6 million of it held by J. P. Morgan partners. Jack and his family held
about 50 percent of the preferred shares; Tom Lamont and his family, over 40
percent. Small wonder the new offshoot caused grumbling from some
competitors, a feeling that J. P. Morgan and Company had honored the letter, but
violated the spirit, of Glass-Steagall.
On September 16, 1935, Morgan Stanley opened for business at 2 Wall Street,
about a hundred yards from 23 Wall. The office of this splendid bastard had a
view of the Trinity Church steeple and its decor evoked its blue-blooded
parentage. Prints of old New York adorned the walls, and signature rolltop desks
were lined up in the manner of 23 Wall. It had something of the mood of a J. P.
Morgan branch office. “My first job in the bank was going to Morgan Stanley,”
recalled Ellmore C. Patterson, later chairman of Morgan Guaranty. “They were
short-handed. It got very busy and they borrowed two of us for about a year.”24
September 16 was one of the most bizarre opening days in American business
history: it didn’t resemble that of a new business. The night before, Perry Hall
asked the janitor to set out a table in case anybody sent flowers. When he
reported to work, he found two hundred floral displays. “In fact, the entire length
of our office was just one row after another of these magnificent flowers in
vases. . . . Nearly every one of them was from our competitors and associates on
the Street.”25 One reporter said it resembled a flower show. The New York Times
noted the eerie sense of continuity: “The inauguration of business proceeded as
if it were just the beginning of another week in any old-established firm.”26 One
Morgan Stanley legend, perhaps apocryphal, claims that so many companies
came for business the first week that when one utility chairman arrived to
discuss financing, Stanley said, “Tell him to come back next week.”27
At the new firm, the leading personalities were recognizable Morgan types.
The press, as if covering the debut of a new country club, showed them golfing
or emerging from the surf. Harold Stanley, a utility-bond expert, was handsome
and distinguished looking with thick, prematurely gray hair, a long face, and
steady eyes. Now nearly fifty, he was president and senior statesman of the firm
and a figure of enormous stature on Wall Street.
Son of a General Electric engineer—the inventor of the Thermos bottle—
Stanley had a very Morgan pedigree: he was a Massachusetts Episcopalian, a
star hockey and baseball player at Yale, and a Skull and Bones member. He
owned a home in Greenwich, Connecticut, and an apartment on Sutton Place. As
a negotiator, he was tough and stubborn but honest. “While others banged
conference tables he sat shyly by; but he seldom budged in an argument,”
reported Newsweek.28 Coolly diplomatic, he was well suited for the political
attacks that would shadow Morgan Stanley for twenty years.
Absent from the opening-day festivities was the firm’s new treasurer, Harry
Morgan, thirty-five, then returning from England aboard a cruise ship. Harry’s
aloofness from the affairs of the firm foreshadowed later developments. Yet it
would be important for the new firm to have not only the Morgan name and
money, but a real, breathing Morgan on the premises.
Harry Morgan had shiny, pomaded hair, a sharp chin, and electrically intense
eyes. He was brusque and aggressive like his grandfather and with some of
Pierpont’s flamboyance. He bought up the Eaton’s Neck peninsula on the North
Shore and commuted by seaplane to Wall Street. As had happened with Jack in
relation to Pierpont during the Pujo hearings, Harry became deeply embittered
by the Pecora hearings’ treatment of his father. It would be the formative event
of his life, making him fanatically private and aloof from any public role other
than in the world of yachting. It would likewise make Morgan Stanley far less
prone than the old House of Morgan to dabble in politics or seek publicity. In
1935, the press portrayed Harry as the real heir to the Morgan business talents,
and he shone in comparison with his more languid, gentle older brother, Junius,
who remained with J. P. Morgan and Company. Harry would function more as
the conscience of Morgan Stanley, the custodian of its traditions, than as a day-
to-day executive. He also had important business contacts through his friendship
with European banking families, including the Wallenbergs and the Ham-bros.
He explained his role thus: “My father, as my grandfather got older, brought into
his firm some very brilliant and desirable new partners. He built a team, and he
was immensely successful in doing that and in acting as a moderator and team
captain. In many ways when this firm was started, I thought that there was a
place for me to act in such a capacity.”29
The founders of Morgan Stanley romanticized their early days, stressing the
perils they braved. “We were going out into a rough sea in a little tiny rowboat,”
said Perry Hall. “We didn’t know how we would be received.”30 They were, in
fact, received like members of a Renaissance court in exile. There were many
links between J. P. Morgan and the new firm. Morgan Stanley closings—that is,
payments for and deliveries of securities—took place at 23 Wall. And George
Whitney, acting as “family physician” to clients, steered them to Morgan
Stanley. Morgan Stanley started out with only a few spillover deals from the
Corner—but what deals! George Whitney steered such clients as Wendell
Willkie, chairman of Consumers Power, to Harold Stanley; before September
1935 was over, Morgan Stanley had its first big electric utility issue. Early in the
summer, Walter Gifford of AT&T had asked Stanley about rumors that Morgan
partners would form a securities firm. When Stanley confirmed this, Gifford
said, “That solves my problem.” He then put on his hat and left.31 AT&T needed
to do some new financing, and the Securities and Exchange Commission was
eager for AT&T to return to capital markets to prove their health under the new
regulations. In a historic issue for Illinois Bell Telephone, Morgan Stanley
published the first newspaper prospectus conforming to New Deal securities
laws, following consultations in Washington between Stanley and SEC chairman
Joseph P. Kennedy.
Despite predictions from the House of Morgan that the New Deal would kill
capital markets, they boomed in 1935, and underwritings jumped fourfold. In its
first year of operation, Morgan Stanley handled an astounding $1 billion in
issues, sweeping a quarter of the market. Forbes hailed a wonder: “Most firms,
institutions and companies start off modestly. Unique is the record of Morgan
Stanley & Co. . . . never remotely approached by any other newly created
organization.”32 The firm originated issues but generally wouldn’t participate in
others’ issues. SEC rules limited the size of underwriting stakes relative to a
firm’s capital, and so syndicates grew huge. On telephone issues, Morgan
Stanley might marshal up to one hundred underwriters and five hundred or six
hundred distributors. Its power to exclude firms from issues made it feared.
Gradually much of J. P. Morgan’s clientele—lovingly referred to as the
Franchise—shifted to the new firm. By the late 1930s, New York Central,
AT&T, General Motors, Johns-Manville, Du Pont, U.S. Steel, and Standard Oil
of New Jersey, as well as the governments of Argentina and Canada, had come
for securities work. Morgan Stanley was strong in the same areas as the preGlass-Steagall unified bank—utilities, telephone companies, railroads, heavy
industry, mining, and foreign governments.
The rest of Wall Street assumed that Morgan Stanley had inherited its parent’s
mantle of authority. Charles Blyth and his partner, Charles Mitchell, sought to
ingratiate themselves with the new leaders. “Our main job is to get under the
covers and as close to them as possible,” Blyth told Mitchell.33 To cultivate
Morgan Stanley, he suggested opening an account at J. P. Morgan and Company.
“It is true our account won’t be very important,” he told Blyth, ”. . . but it would
show that our hearts are in the right place.”34 Such was the persisting faith in any
firm bearing the Morgan name.
For New Deal reformers, it was also hard to believe that J. P. Morgan and
Company didn’t lurk somewhere in the shadows. That Morgan Stanley assumed
so many former J. P. Morgan clients bred suspicion. One powerful enemy who
resolutely tracked Morgan Stanley conquests was Interior Secretary Harold L.
Ickes. After the firm’s formation, he wrote in his diary, “Meanwhile, taking
advantage of the depression, the Morgan people have extended their financial
domination. Ordered to put a stop to the underwriting business of their bank,
they have organized a separate company which is doing even more business than
was done by the bank itself along this line.”35 Ickes and other enemies bided
their time. But they would soon strike back in a sustained attack, through
Congress and the courts.
For J. P. Morgan partners down the street, the sudden boom in the securities
market was bitterly ironic, for the parent firm was sleepy in the late 1930s.
Almost the entire bank was squeezed into 23 Wall, with some scattered offices in
15 Broad Street, next door. With $430 million in total resources, J. P. Morgan
and Company still ranked as the biggest private bank in the world. But GlassSteagall had meant more than a loss of business, money, and power. It robbed
the bank of some ineffable mystery that had surrounded it. With the Pecora
hearings, the bank had published a balance sheet for the first time. Now the firm
had to publish statements and submit to government examination. Likewise in
London, Monty Norman asked Teddy Grenfell for the firm’s balance sheet for
the first time in 1936. Slowly, gradually, the gentleman bankers’ world was being
bureaucratized, and the financiers were emerging, dazed and blinking, into
unaccustomed sunlight.
CHAPTER TWENTY
WIZARD
IT was now the twilight of the Diplomatic Age for the House of Morgan. Far
from enjoying privileged access to the White House as it had in the twenties, it
bore a special stigma. This new detachment from Washington was most apparent
as the bank wrestled with the fate of the huge German loans from the 1920s—the
celebrated 1924 Dawes loan and 1930 Young loan. Although these appeared
under quasi-governmental auspices, Washington now dodged responsibility for
their repayment and even showed a cavalier indifference. The New Dealers
didn’t want to jeopardize trade and security interests to enforce debt repayment,
and the Morgan partners felt cheated. After all, dating back to the first China
consortium, they had cooperated with the government on the assumption that
they would receive official support in negotiating with defaulting debtors. That
was the quid pro quo. Now the House of Morgan, after carrying out the bidding
of its political masters, felt abandoned as Germany threatened default with
Hitler’s advent as chancellor in 1933.
To follow the saga of the Morgan involvement with the German reparations
payments, it is helpful to retrace the odyssey of Dr. Hjalmar Schacht, who
alternately posed as friend and foe of the House of Morgan. In 1930, he had
resigned from the Reichsbank to protest the final terms of the Young Plan. After
the Nazi election success in 1932, he sided with that party and prodded fellow
bankers at the Deutsche and Dresdner banks to lend financial support. Among
the German industrial class, Dr. Schacht conferred legitimacy on Hitler’s thugs.
At Hermann Göring’s home in early 1933, he helped Hitler raise M 3 million
from businessmen, a meeting climaxed by Gustav Krupp von Bohlen und
Halbach’s pledge, on behalf of the rich guests, to give staunch support to the
Nazis. Schacht even consented to a request from Hitler that he administer the
new campaign fund.
Hindenburg, yielding to Hitler’s wishes, restored Schacht to his post as
Reichsbank president. After 1934, Schacht was also the minister of economics.
As financial overlord of the Third Reich, Schacht would supervise public works,
including construction of the Autobahn, his services winning him a reputation as
the evil wizard of Nazi finance, the mountebank who could make financial
magic for the Fuhrer. According to William Shirer, “No single person was as
responsible as Schacht for Germany’s economic preparation for the war which
Hitler provoked in 1939.”1 In one panegyric, Hitler said that Schacht had
accomplished more in a three-year period than had the entire Nazi party
combined.
As a Nuremberg war criminal, Schacht would portray himself as an early foe
of Hitler’s, a beleaguered man trying to stop the mad progress of the war
machine. He never joined the Nazi party and claimed that he had opposed the
persecution of the Jews. But there was a great deal of humbug about Schacht,
who liked to pretend his pure intentions were being subverted by unscrupulous
German politicians. In his duplicitous style, he would tell Jewish bankers that
Hitler was a temporary evil needed to restore order, and he would vocally oppose
persecution of the Jews. (He feared that such persecution would tarnish
Germany’s image in overseas banking circles.) Then he would boast privately to
Hitler that he had blocked Jewish bank accounts and channeled the money into
German rearmament. Because there was some truth to his self-defense, his story
is more complex than that of his unreservedly diabolic associates. In the words
of Nuremberg prosecutor Telford Taylor, “This self-righteous and stiff-necked
individual was and remains the most enigmatic and controversial person of the
pre-war years.”2
Dr. Schacht was an anomaly among high German officials. He remained a
gentleman banker of the old school, giving Nazi finance a patina of dignity.
Sporting rimless spectacles, parting his fine, white hair down the middle,
smoking cigars, and wearing pinstripes and suspenders, he was indispensable to
Hitler, not only for the ingenious way in which he harnessed German banking to
a war economy, but for the respectability he won abroad. Having slain the 1923
hyperinflation, Schacht could fool international bankers into thinking they had a
friend in Berlin who adhered to their own financial standards. And he had
already won the lasting friendship of Montagu Norman. Where others saw a
Nazi collaborator, Norman saw a courageous central banker fighting inflation
and combating German rearmament for its incompatibility with sound finance.
Schacht once told Hitler, “Only two things can bring about the downfall of the
National-Socialist regime, war and inflation.”3 This was the Hjalmar Schacht
that Monty Norman preferred to see. The Morgan partners were more quickly
disillusioned, believing that Schacht never wanted to pay reparations and had
misled them into thinking he did.
Unlike the many flunkies who surrounded Hitler, the arrogant Schacht
exercised real power; finance was an area beyond the pale of the Fiihrer’s
obsessions. At first, he gave Schacht carte blanche in running the Reichsbank.
“He understood nothing whatever about economics,” Schacht later explained.
“So long as I maintained the balance of trade and kept him supplied with foreign
exchange he didn’t bother about how I managed it.”4 Bullheaded and conceited,
Schacht wouldn’t hesitate to yell at Hitler and took liberties that would have cost
others their heads. Once the Fiihrer gave him a painting as a gift; Schacht
returned it, saying it was a forgery. Nothing fazed him, and the cocksure banker
had Hitler a bit bamboozled. Albert Speer noted of Hitler, “All his life he
respected but distrusted professionals such as . . . Schacht.”5
From a political standpoint, no instant alarm sounded at the House of Morgan
when Hitler took office in 1933 and gained the power to rule by decree. Jack
Morgan still nursed the old grudges against the Hun, but his reservations about
Hitler were less moral than nationalistic. As he told his friend the Countess
Buxton, “If I could feel more easy about your friends, the Boche, I should feel
myself that we were all going to get along pretty well; but, except for his attitude
toward the Jews, which I consider wholesome, the new Dictator of Germany
seems to me very much like the old Kaiser.”6
Nevertheless, a shift in Germany’s policy toward foreign debt appeared
quickly. In May 1933, Hitler dispatched Schacht to Washington for eight days of
talks. To divert him on his transatlantic crossing, Lamont sent biographies of
Napoléon and Marie-Antoinette—volumes that perhaps contained their own tacit
message about the corruption of absolute power. Meeting with Roosevelt and
Secretary of State Cordell Hull, Schacht boisterously insisted that stories about
the harassment of Jews were grossly exaggerated and said that foreign protest
would only backfire. He also warned that Germany was running short of foreign
exchange to service the $2 billion in debt held by American investors. This
White House meeting occurred during the Pecora hearings, and Schacht
recorded this curious reaction from the president: “Roosevelt gave his thigh a
resounding smack and exclaimed with a laugh: ’Serves the Wall Street bankers
right!’ ”7 Afraid that Schacht might take this literally, Roosevelt’s advisers
warned the president of the potential damage of his little jest. The next day, Hull
rushed to tell Schacht that Roosevelt was actually shocked by the default threat.
“It occurred to me that the President had not expressed any shock until twentyfour hours had elapsed,” observed Schacht.8 Roosevelt’s attitude may well have
emboldened Schacht in his determination to repudiate German debt held in
America.
That June, Schacht announced a moratorium on long-term overseas debt. The
big German loans had been multinational—the Young loan, for instance, had
appeared in nine markets and currencies—but the various creditor countries
didn’t mount a united defense. Rather, they behaved like panicky creditors in a
crowded bankruptcy court, each trying to get Germany to pay off his own bonds
first. Articles appeared in the U.S. press reporting that European creditors
wanted to strike separate deals with the Nazis. As a lever to pry open foreign
markets to German goods, Schacht favored deals with countries running trade
surpluses with Germany. The implicit message was buy more from us, and we
might look more favorably upon your bonds. It was a policy of selective default,
a clever divide-and-conquer strategy that broke down creditors’ unity and set
them against each other. Schacht hoped that by stalling the creditors and driving
down the price of the German bonds, he could buy them back at a price
significantly lower than their face value—a tactic that apparently pleased Hitler.
When Lamont learned that Schacht was contemplating selective repudiation in
1934, he reminded him that Morgans had supplied over half the Dawes funds
and a third of the Young funds. With pardonable overstatement, he said the bank
had always advocated moderation toward Germany. Most of all, Lamont
appealed loftily to international law, promises made to investors that these loans
superseded all others and enjoyed special political protection. Lamont was
speaking reasonably to a man already hip-deep in diabolic machinations: “Of
course, we expect to see the Reich obligations on [the Young Loan], as on the
Dawes loan, carried out. Otherwise all international agreements might as well be
torn up.”9
From Dr. Schacht’s reply, it was clear that the usual norms of business
behavior no longer applied in Germany. Written in an extravagant, hysterical
style, it was not the sort of letter people usually sent to the sedate precincts of 23
Wall. Schacht began by saying Germany’s problem was not default but a transfer
difficulty resulting from a lack of foreign exchange. Then he veered off into
bombast and mad whimsy:
Whether you may threaten me with death or not will not alter the situation
because here is the plain fact that I have no foreign valuta [foreign exchange],
and whether you may call me immoral or stupid or whatever you like it is
beyond my power to create dollars and pounds because you would not like
falsified banknotes but good currency. . . .
I would be willing to sell my brain and my body if any foreigner
would pay for it and would place the proceeds into the hands of the Loan
Trustees, but I am afraid that even the proceeds of such a sale would not be
sufficient to cover the existing liabilities.10
Schacht may have wanted to drive a wedge between England and America,
perpetuating tensions over war debts and reparations. By threatening to strike a
separate bargain by which British bondholders received some payments (albeit at
lower interest rates) and Americans didn’t, he delivered a blow to AngloAmerican amity. (Schacht argued that Germany’s trade surplus with England
allowed it to make the interest payments. )The fight over unequal treatment, first
with German, then with Austrian, debt, would prove the most divisive issue ever
between J. P. Morgan and Company and Morgan Grenfell.
There had always been a latent contradiction at the heart of the AngloAmerican Morgan empire. So long as U.S. and British interests coincided, it
could be straddled. When those interests diverged, however, British and
American partners were obliged to follow the wishes of their respective
governments. They were too deep in politics to do otherwise. With J. P. Morgan
and Company now a minority stockholder rather than a partner in Morgan
Grenfell, there was also a new structural distance between the two firms.
For more than twenty years, Teddy Grenfell had been the Morgan ambassador
to the British government. Now, somewhat unwillingly, he conveyed stiff
protests from his New York partners to Whitehall. With rumours of a separate
German deal with England swirling around Wall Street, Lamont drafted a letter
to the British government, demanding that it take responsibility for American
bondholders of German debt. Morgan Grenfell partners argued against its testy
wording, but Lamont and Leffingwell refused to back down. Biting his tongue,
Grenfell duly delivered the cable to Prime Minister Ramsay MacDonald. For a
letter to a chief of state, it struck a faintly arrogant chord, a tone of mild menace:
Prior to the issue of the External Loan of 1924, we had not been associated with
German finance, public or private, and we venture most respectfully to remind
you that in your then capacity as Prime Minister you did us the honor of
addressing our firm . . . by which you conveyed to us the requests of His
Majesty’s Government that we should undertake the placing of the Dawes Loan
in this country. . . . Meanwhile, however, for the reasons indicated above, we
believe that His Majesty’s Government . . . will wish to use its good offices in
every way possible for the protection of interests of all holders of these loans
irrespective of nationality. . . .11
Two weeks later, Lamont followed this up by meeting with Neville
Chamberlain, then chancellor of the Exchequer. It was a vintage Lamont
performance—tough resolve beneath suave civility. He said Morgans had
become involved with Germany only because the Bank of England wanted to put
Weimar Germany back on its feet and enable it to make reparations. Affable and
noncommittal, Chamberlain asked what he would recommend. Lamont asked
whether Chamberlain would scuttle a separate accord with Germany if no justice
were done to American investors.
Chamberlain: I should not feel justified in going so far as to cancel my
British arrangements if they fail to accede to my request re U.S.A.
Lamont: No, I agree, nor should I expect you to do so. I believe that the
representations you make will be so clear and strong as to go far
toward getting similar treatment accorded to us.12
The British never rode to the rescue. What made this so galling to Lamont was
that he always believed Britain had initiated the side deal with Schacht. Morgan
partners were thunderstruck by what they saw as British cynicism and the end of
financial leadership they had always associated with the City. Schacht himself
didn’t seem to dispute Lamont’s version of events. When George Harrison went
to Germany with Roosevelt’s encouragement, Schacht professed dismay over
discrimination against American bondholders. He said the British had
blackmailed him into their deal and kept telling Harrison “God bless you!” for
protesting to the foreign minister. Harrison came back to New York very
disturbed. “He utterly disagrees with Monty about Hitler and Hitler-ism,”
Leffingwell told Lamont about Harrison’s visit. “He didn’t see a smile on any
face in Germany in two days.”13
To press his case, Lamont got Secretary of State Cordell Hull worked up about
the discriminatory treatment of American bondholders. As he told Grenfell, “The
American Government feels very strongly that the American investment
community was had.”14 Jack Morgan appealed to Monty Norman, whom he
believed to be the one person outside Germany with any influence over Schacht.
Norman wasn’t so upset by the German actions and was willing to make
allowances for the Nazis. He continued to harbor more hostility toward France
than toward Germany. In July 1934, he arrived in New York looking sickly and
dispirited. He immediately telephoned Russell Leffingwell and took a cab down
to 23 Wall. Leffingwell summarized their meeting for Lamont: “Monty says that
Hitler and Schacht are the bulwarks of civilization in Germany and the only
friends we have. They are fighting the war of our system of society against
communism. If they fail, communism will follow in Germany, and anything may
follow in Europe.”15 This high regard for German culture had led Norman to
back the 1924 Dawes loan in the first place. But the admiration now persisted
under altered circumstances. As we shall see, most Morgan partners took a
relatively benign view of German intentions, although there were skeptics from
the start. The cynically acute Grenfell first penetrated Schacht’s disguises,
already believing in 1934 that he was building up stocks of raw materials with
which to prepare Germany for war.
Meeting with Schacht at Baden-Baden in 1935, Lamont worked out a debt
settlement that provided about 70 percent of the interest due on the two large
German loans. After this meeting, Lamont and Schacht continued to perform a
strange duet by mail. They pretended to be normal bankers in normal times,
although Schacht’s behavior seemed increasingly erratic. In 1936, Morgan
Grenfell partner Francis Rodd visited Schacht in Berlin and found him in a
crazily jocular mood. He rather giddily instructed Rodd to “send his love” to
Lamont and praised Morgans as the world’s premier bank. Schacht even invited
Lamont to attend the Olympic Games, held that year in Berlin.
In a power struggle, Schacht finally lost out to his arch rival, Göring. His
downfall began when he balked at buying foreign exchange for Nazi propaganda
efforts abroad and tried to limit military imports of raw materials to what could
be obtained by barter arrangements. In the last analysis, Schacht was too
orthodox a banker, favoring slower growth and civilian production rather than a
permanent war economy. In 1936, sitting on the terrace at Berchtesgaden, Albert
Speer overheard Schacht arguing with Hitler in his office. As Speer recalled:
“Some time around 1936 Schacht had come to the salon of the Berghof to report.
. . . Hitler was shouting at his Finance Minister, evidently in extreme excitement.
We heard Schacht replying firmly in a loud voice. The dialogue grew
increasingly heated on both sides and then ceased abruptly. Furious, Hitler came
out on the terrace and ranted on about this disobliging, limited minister who was
holding up the rearmament program.16
Göring was put in charge of raw materials and foreign exchange. Although
Schacht soon relinquished the economics ministry to Göring, he retained the
Reichsbank presidency until January 1939.
Schacht will reappear in the Morgan saga at the time of the Austrian
Anschluss. At this point, however, suffice it to say that the German debt quarrel
left deep wounds on both sides of the Atlantic and dredged up the old issue of
war debts. The British felt the United States should have canceled old war debts;
Americans, even Morgan partners, believed Britain could have made a more
determined effort to pay. Now that the Depression had finally retired lingering
issues of debt and reparations, a new set of issues over the settlement of default
debt would tear at Anglo-American financial harmony. The tension would last
right up until the war.
mid-1930s resounded with charges that to protect Allied loans the House
of Morgan had led America into the First World War. Isolationists exploited this
canard to try to ensure American neutrality in any future European war. They
rallied the country against Wall Street, propounding a simplistic view of history
that equated big business with bloodlust for war profits. A Wisconsin
congressman, Thomas O’Malley, introduced a bill requiring the richest
Americans to be drafted first—a foolproof way, he thought, to end wars. “It will
be Privates Ford, Rockefeller, and Morgan in the next war,” he said.17
Portents of war were visible everywhere—for those who cared to see them. In
March 1935, Hitler tore up the Versailles treaty and reintroduced obligatory
military service. He boasted to Sir John Simon, the British foreign secretary, that
the Luftwaffe had attained parity with the Royal Air Force. A year later, the
Fiihrer occupied the Rhineland without any military rebuke from the Allies. Yet
Sir Anthony Eden, secretary of state for foreign affairs, thought the best way to
keep Germany from war was to strengthen Hitler’s economy. In 1936, Charles
Lindbergh, at the invitation of Hermann Göring, toured Germany and marveled
at its aircraft factories and technology, later urging Britain and France to retreat
in self-defense behind a string of British dreadnoughts and the Maginot Line.
Isolationists might portray the Morgan partners as warmongers, but they
weren’t alarmed by developments in Germany. In fact, they were strangely
sanguine. After the Rhineland occupation, Lamont told Dr. Schacht, “The
American public has to a considerable extent gotten the idea that Europe is about
to plunge into the midst of another general war. . . . I may be too much of an
optimist, but I do not share this view.”18 Even while espousing cooperation with
England, the bank steadfastly refused to interpret Axis rearmament as the
prelude to a new European conflict. For all the rhetoric about mercenary
bankers, the Morgan partners were more prone to appeasement than
hawkishness.
In early 1936, the ghost of World War I was revived by a Senate munitions
investigation chaired by Senator Gerald P. Nye, a North Dakota Republican and
adherent of Father Coughlin. With his pugnacious face and thrusting chin, Nye,
like Pecora, formed a picturesque contrast to the stately Morgan partners he
subpoenaed. He set out to prove that J. P. Morgan and other banks had
dragooned America into war to safeguard loans and perpetuate a booming
munitions business. Once again, the timid Jack Morgan was transmogrified into
a venal, snarling monster. As Time magazine said, “Before the Committee for
settlement was a scandalous question: should J. P. Morgan be hated as a
warmonger second only to Kaiser Wilhelm?”19 For Jack, who so earnestly hated
THE
the Germans, it was a mortifying comparison.
Once again, a Morgan retinue departed for Washington, occupying an entire
eighth-floor wing of the Shoreham Hotel and remaining barricaded behind a
phalanx of plainclothes guards. (That same year, Polaroid founder Edwin H.
Land visited Jack at 23 Wall and found him guarded by men with machine guns.)
As if to show their sublime contempt for the hearings and disdain for the follies
of petty men, the partners dressed in dinner jackets for their nightly meal.
Newspapers showed George Whitney, legs folded, elegantly reading a
newspaper in a smoking jacket, bedroom slippers, and bow tie before retiring for
the night. Once again, Morgan staffers were sidetracked by a government
inquiry. From a Brooklyn warehouse, they disinterred the bank’s wartime
documents—twelve million of them, enough to fill up forty trucks.
The Nye hearings were a flop. Unlike the Pecora hearings, where partners
were defensive and stammered their way through sometimes incoherent answers,
the Nye committee invited them to relive their proudest hour. “We were pro-ally
by inheritance, by instinct, by opinion,” Lamont boasted, admitting that partners
were glad to see America enter the war.20 At that dawn of the Diplomatic Age,
he contended, the bank had scrupulously heeded Washington’s wishes, waiting
until Robert Lansing had replaced William Jennings Bryan and approved Allied
credits.
Far from seeming bellicose, Jack looked like a sleepy, avuncular old man.
When Lamont said money was the root of all evil, Jack slyly interrupted: “The
Bible doesn’t say ’money,’ ” he grinned. “It says, ’The love of money is the root
of all evil.’ ”21 And while Lamont parried questions, Jack dozed or chatted with
newsmen during breaks. Indeed, he had been appalled by the outbreak of war
and had issued appeals to belligerents in 1914 to stop the combat. When it came
to supporting the Allies, he was proudly secure in his position. “The fact that the
Allies found us useful and valued our assistance in their task is the fact of which
I am most proud in all my business life of more than 45 years.”22 His personal
defense was bluntly effective: “Do you suppose that because business was good
I wanted my son to go to war? He did, though.”23
The hearings had as much to do with the Depression as with the war, and there
was an uproar over Jack’s classic blooper: “If you destroy the leisure class, you
destroy civilization.” Asked by reporters to define this class, Jack stumbled: “By
the leisure class I mean the families who employ one servant, 25 million or 30
million families.”24 Critics from the Housewives League of America gleefully
pointed out to newspaper editors that there were fewer than thirty million
families in the United States, and only two million of them had cooks or
servants. As an amateur sociologist, Jack left something to be desired.
Although Morgan partners considered the controversy a sideshow, it had an
enduring influence, helping to muzzle their pro-Allied views and making them
gun-shy of political controversy as World War II approached. In 1934, California
senator Hiram W. Johnson, an isolationist, had sponsored the Johnson Act,
which forbade loans to foreign governments that were in default on their dollar
obligations. Neutrality Acts were also passed that blocked warring countries
from purchasing arms or raising loans in the United States. This was part of an
attempt to forestall any repetition of the Morgan Export Department or the
Anglo-French loan in the event of war and to induce a steady American
disengagement from Europe’s affairs.
Even as America debated its position in a hypothetical European war,
Mussolini launched a full-scale invasion of Ethiopia in October 1935. II Duce
had a megalomaniac vision of merging this territory with the colonies of Eritrea,
Italian Somaliland, and Libya to forge an East African empire. Some five
hundred thousand Ethiopians were sacrificed in a campaign infamous for its
savage use of mustard gas. Like the Japanese in Manchuria, Mussolini’s army
pretended to act in self-defense and had the effrontery to denounce Ethiopian
aggression. Fifty League of Nations states condemned the violation of Ethiopian
sovereignty and voted economic sanctions. Relying on voluntary compliance by
American business, Secretary of State Cordell Hull asked for a “moral” embargo
on sales of war materiel to Italy—shipments of oil, metal, and machinery. These
exhortations were often ignored by American industry. Although Britain went
along with the League’s economic sanctions, it stopped short of more extreme
measures, such as cutting off all supplies of oil. Prime Minister Stanley Baldwin
instructed his foreign secretary, Sir Samuel Hoare, “Keep us out of the war, Sam.
We are not ready for it.”25
By the mid-1980s, the House of Morgan’s enthusiasm for il Duce had cooled